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WASHINGTON, D.C. - An Alabama auto dealership has given up its attempts to silence an online critic, choosing to dismiss its case against a dissatisfied consumer who built a Web site critical of the dealership rather than pursue its efforts to trample the consumer's First Amendment rights. Crown Pontiac-Nissan of Hoover, Ala., has filed a notice that it was dismissing its case against Thomas Ballock, who is represented by Public Citizen. In a settlement agreement between the two parties, Crown Pontiac-Nissan agreed to drop its case and promised not to pursue any legal action against Ballock based on his Web site; in return, Ballock promised not to sue Crown for malicious prosecution or other misconduct based on its lawsuit.

Ballock created a Web site criticizing Crown because he was unhappy with the car he purchased at Crown's dealership and with Crown's response to his complaints about the car. Ballock constructed the site in February at www.crownpontiacnissan, detailing his experience with the dealership and discussing the ways in which arbitration, a private dispute resolution system, could hurt consumers. In April, the dealership sought and received from the U.S. District Court in Alabama a preliminary injunction forcing Ballock to dismantle his site. The injunction prevented Ballock from using Crown's name not only in the domain name and metatags of the site, but also in the text. At the time the injunction was issued, Ballock did not yet have an attorney and had not read the papers seeking an injunction submitted by Crown's attorneys.

In May, Public Citizen took over the litigation as Ballock's legal counsel. Public Citizen became involved in the case because of its longstanding interest in protecting consumers' First Amendment right to engage in consumer commentary in any medium, including on the Internet. On Ballock's behalf, Public Citizen asked the court to lift its injunction prohibiting Ballock from criticizing Crown on the Internet. After Public Citizen became involved, the dealership backpedaled on some of the arguments on which the injunction was based, but it continued to argue that Ballock's Web site should be enjoined. In July, the judge lifted his injunction and Ballock re-posted his Web site on the Internet. Briefs filed in this case, as well as information on other similar cases, are available at www.citizen.org/litigation/briefs/IntFreeSpch/index.cfm.

"Crown first said the site violated its trademark law, then changed its tune when we pointed out that it had never registered the name as a trademark," said Amanda Frost, an attorney with the Public Citizen Litigation Group, who represented Ballock. "Crown then claimed trademark protection under a law protecting non-registered trademarks from commercial use, but that was an untenable argument because Ballock's site was clearly noncommercial. In addition, Crown could not demonstrate that customers were confused as to the intent of Ballock's Web site, and thus would not have prevailed in any event. This settlement is a reaffirmation of consumers' First Amendment rights to criticize products and services on the Internet."

Court Upholds Right of Online Critic

Dallas Web Designer Did Not Confuse Internet Users, Infringe on Trademark in Fan Site, Gripe Sites

WASHINGTON, D.C. – In a ringing affirmation of free speech rights on the Internet, a federal appeals court has upheld the right of a Dallas man to use the name of a local shopping mall as the domain name for a Web site singing the praises of that mall, as well as a second Web site denouncing the mall's owner for suing him under the federal trademark laws.

Computer consultant Henry Mishkoff has been involved in a dispute with the nationwide shopping mall developer Taubman Company, which was building a mall called The Shops at Willow Bend, in Plano, Texas, near his Dallas home. Mishkoff originally built a "fan site" praising the mall, but after Taubman claimed his site violated its trademark and demanded it be taken down, he developed a site criticizing the company.

In the fall of 2001, the Michigan district court ordered Mishkoff to remove both of his sites from the Web, taking a dangerous step toward restricting non-commercial speech on the Internet. The appeals court suspended the order against the gripe site in March while it considered the First Amendment implications of the case.

Today's opinion overturns the district court's injunctions that prevented Mishkoff from using the domain name "shopsatwillowbend.com" in his fan site and variations on "taubmansucks.com" and "shopsatwillowbendsucks.com" in his subsequent gripe sites. In a unanimous opinion authored by Circuit Judge Richard Surhheinrich, the court wrote that Mishkoff clearly had no commercial intent in either of his sites, that there was no likelihood that any visitors to his sites would be confused as to their purpose and that allowing the injunctions to remain would harm the public by curtailing free speech rights.

The Court stated, "Taubman concedes that Mishkoff is 'free to shout "Taubman Sucks!" from the rooftops'… Essentially, this is what he has done in his domain name. The rooftops of our past have evolved into the internet domain names of our present."

"This is the first time an appellate court has addressed the trademark and free speech rights for an Internet fan site not meant to mislead and gripe site, and it was particularly important that the court get things right. This decision will set an important precedent protecting the rights of citizens to criticize and to praise. It is quite a victory," said Paul Alan Levy, an attorney with the Public Citizen Litigation Group who represented Mishkoff.

"I'm very gratified to learn that the Court of Appeals has agreed with most of the points I've been making all along," Mishkoff said. "Hopefully, the ruling will help to ensure that other people will be able to exercise their right of free speech without having to worry about being harassed by big companies with deep pockets."

Barbara Harvey has served as Mishkoff's local counsel in Detroit. Professor Milton Mueller, director of the Syracuse University's Graduate Program in Telecommunications and Network Management Research and co-director of The Convergence Center, has served as Mishkoff's pro bono expert witness who wrote a report on the case, available online at http://www.taubmansucks.com/Act108.html.

A copy of the court's opinion is on the Web at:
http://pacer.ca6.uscourts.gov/cgi-bin/getopn.pl?OPINION=03a0043p.06

Public Citizen became involved in the case because it has a history of defending free speech on the Internet. For more information on this and other online free speech cases, go to:
http://www.citizen.org/litigation/briefs/IntFreeSpch/index.cfm

Public Citizen Defends Free Speech

(1/30/03) - A Long Island, N.Y., jury has awarded more than $15 million to the family of a woman whose Pap smear was misread, which allowed an undiagnosed cervical cancer to spread and eventually kill her.

After the cancer was detected, Karen Pedone suffered about three years of unsuccessful debilitating treatment that included radiation and chemotherapy.

Plaintiff's attorney Steven Pegalis of Pegalis & Erickson in Lake Success, N.Y., successfully argued that had Pedone been properly diagnosed, she would have survived. The 35-year-old mother died in 1997, leaving two young daughters and a husband, who died six months later of a heart attack. The children now live with their paternal grandparents.

In 1996, Pedone, who had worked part-time as a medical biller, sued her gynecologist for malpractice and the lab, Metpath, a predecessor company of Quest Diagnostics, for its failure to spot the abnormalities in the smear. Estate of Karen Pedone v. Metpath/CCL, No. 02199/1996 (Nassau Co., N.Y., Sup. Ct.). The jury, in a 5-1 vote, cleared the doctor of not having told the lab that Pedone had previously experienced uterine bleeding.

After a two-week trial, it took the jury just five hours to unanimously find the lab culpable for Pedone's death.

Metpath had also blamed the doctor, claiming it would have taken a closer look at the slide if it had known about the bleeding.

"The clinical information was not in the requisition for the Pap smear," said Metpath's attorney, Dennis McCoy of Buffalo, N.Y.'s Hiscock and Barclay. "Had the lab known about the bleeding it would have automatically triggered a rescreening, and we would have caught it."

McCoy added that all labs randomly rescreen a certain percentage of slides, but that the slide of a woman with a significant clinical history, which puts her at higher risk, always gets a second look.

"No one argued that the abnormalities weren't present," McCoy said.

"But it was our contention that every board-certified gynecologist should be aware of the importance of putting significant clinical history on the requisition form," McCoy said. "Frankly, it's a little disappointing that the jury didn't see it that way."

LAB REPORT CRITICAL

Michael Boranian of the Law Offices of Charles X. Connick of Mineola, N.Y., who represented Dr. Richard Halpert, said that Halpert believed that Pedone's irregular uterine bleeding was due to a hormonal imbalance and "the jury clearly wasn't convinced that such information ought to be on the report to a lab in order for them correctly interpret a slide."

At trial, the parties stipulated to $625,000 for the loss of Pedone's services, should liability be found. The jury awarded $6.5 million for Pedone's pain and suffering, and a combined $8 million for her children's loss of guidance, which in New York state is considered an economic loss, although it is not subject to expert testimony.

"That's a somewhat controversial aspect of the wrongful-death statute," McCoy said. "The jury's award far exceeded by multiples the next highest jury award that has been sustained."

McCoy said he would move to have the award reduced. Pegalis wouldn't second-guess the jury for letting the doctor off the hook, but he is adamant that no woman need experience such devastation again.

"Regardless of this jury's verdict on this set of facts," Pegalis said, "in the future, it seems clear to me that doctors should know what a lab needs and the lab should let doctors know what the lab needs. There was a safety net in place that would have saved her life, but the doctor didn't know it. But in 2003 this should never happen again."

(1/24/03) - Noting last year's "proliferation of frauds" by corporate officers, a state appellate court has made it easier to sue an accountant for allegedly certifying the accuracy of a corporation's financial statements that contained numerous misrepresentations.

New York's Appellate Division, 1st Department, in Houbigant Inc. v. Deloitte & Touche LLP, 1598, reinstated fraud and aiding and abetting claims against Deloitte & Touche, while dismissing a malpractice claim against the accounting firm arising from the 1999 bankruptcy of Renaissance Cosmetics.

Justice David B. Saxe, writing for the unanimous five-judge panel, said Houbigant, which owned trademarks for perfumes and licensed the marketing and sales of the scents to Renaissance Cosmetics, had provided sufficiently specific allegations against Deloitte based on the accounting firm's certification of the accuracy of Renaissance's audited financial statements for 1995, 1996 and 1997.

Houbigant's licensing agreement required Renaissance and its subsidiaries to maintain a net worth of at least $10 million to assure payment of their royalty obligations. However, in June 1998 it was publicly disclosed that Renaissance's net worth had been overstated by nearly $200 million. Houbigant terminated its licenses in March 1999, and Renaissance filed for bankruptcy three months later.

"Houbigant alleges that when Deloitte certified the accuracy of [Renaissance's] financial statements, it knew, but failed to acknowledge, that [Renaissance's] financial statements actually contained numerous serious irregularities and inaccuracies, which it knew could have a material impact on the accuracy of the financial statements' recitation of the corporation's net worth," Justice Saxe said. That was sufficient to adequately plead the misrepresentation and scienter elements of fraud, he said.

The fraud counts had been improperly dismissed on Deloitte's motion to dismiss the complaint, Saxe said, because at the pleading stage "the plaintiff need not be able to make an evidentiary showing of exactly what the accountant knew as to falsehoods in the certified financial statements."

Although some previous 1st Department rulings "seem to indicate that a fraud pleading against an accountant must contain hard evidence," Saxe said New York's Civil Practice Law and Rules § 3016(b) and a 1985 New York Court of Appeals ruling, Credit Alliance Corp. v. Arthur Andersen & Co., 65 NY2d 536, had no such requirement.

Requiring a showing that an accountant's "knowingly false statement" and "direct participation" in the fraud on a dismissal motion would improperly apply a summary judgment standard to the dismissal determination, the judge said.

"Keeping in mind the difficulty of establishing in a pleading exactly what the accounting firm knew when certifying its client's financial statements, it should be sufficient that the complaint contains some rational basis for inferring that the alleged misrepresentation was knowingly made," he said.

"[T]o require anything beyond that would be particularly undesirable at this time, when it has been widely acknowledged that our society is experiencing a proliferation of frauds perpetrated by officers of large corporations, for their own personal gain, unchecked by the 'impartial' auditors they hired," Justice Saxe added.

ACCOUNTING MALPRACTICE

On the other hand, he said, Houbigant's claim of accounting malpractice against Deloitte should have been dismissed because Houbigant was not Deloitte's client, and the "linking conduct" that would support a negligence claim by a non-client third party had not been shown.

Acting Presiding Justice Eugene Nardelli and Justices John T. Buckley, Betty Weinberg Ellerin and George D. Marlow concurred with Saxe's opinion.

Houbigant was represented on the appeal by John W. Schryber of Patton Boggs and Mary E. Flynn and Kieran X. Bastible of New York's Morrison Cohen Singer & Weinstein.

Michael P. Carroll, Jerome G. Snider, Michael S. Flynn, William C. Komaroff, Matthew S. Stewart and Susan L. Shin of New York-based Davis Polk & Wardwell appeared for Deloitte & Touche.

Previous article about Duke Energy’s auditor

Deloitte & Touche Sued Again

BALTIMORE - A former currency trader was sentenced to 71/2 years in prison Friday for hiding $691 million in losses at Allfirst Financial after bad trading bets snowballed, in one of the largest-ever bank frauds.

John Rusnak, 38, apologized during his sentencing and said he wanted to try to make restitution that could lead to "some redemption later in life."

He could have faced up to 30 years in prison. The 71/2-year sentence was part of a plea bargain with prosecutors. Upon his release, he must start paying $1,000 a month for the five years of his probation.

Rusnak will remain on the hook for the full $691 million he lost, but prosecutors said the amount he pays back will depend on how much money he is able to make after prison.

"If he does get (a) book deal or a movie deal or something like that, we're going to get that money," said U.S. Attorney Thomas DiBiagio.

DiBiagio said Rusnak will not do his time at a halfway house or a camp to work "on some golf course."

"He is going to go to prison with the bank robbers and the drug dealers and the other criminals because that's what he is," DiBiagio said.

David Irwin, Rusnak's attorney, described his client's sentence as "a very bitter pill."

Rusnak was indicted in June in the biggest bank-fraud case since Nick Leeson lost more than $1 billion on futures trades, causing the 1995 collapse of England's Barings Bank.

At Allfirst, Rusnak ran up the losses over five years, mostly from trading yen.

Rusnak didn't directly profit from the losses, but prosecutors said he got bonuses of more than $650,000 by making it look as if the bank was making money instead of losing vast sums from 1997 to 2001.

Prosecutors said the father of two collected about $433,000 in bonuses before the fraud was discovered.

DiBiagio said Rusnak's white-collar crime was devastating to the bank and precipitated hundreds of layoffs announced this week.

At the time, Allfirst was under parent company Allied Irish Banks.

AIB, based in Dublin, announced plans in September to sell Allfirst to Buffalo, N.Y.-based M&T Bank Corp. for about $3.1 billion. This week, M&T said it is phasing out 1,132 Allfirst employees as part of the sale, expected to be completed in March.

(1/15/03) - Sidestepping an all-capitals disclaimer on page one of an employee handbook, Vermont's Supreme Court has revived a woman's right to sue her ex-employer for breaching an implied contract when it fired her.

The 3-2 ruling reverses in part a trial court grant of summary judgment for Champion Jogbra of Burlington, Vt., and against fired sales administrator Linda Dillon. Dillon v. Champion Jogbra, No. 2000-560.

The disclaimer said: "THE POLICIES AND PROCEDURES CONTAINED IN THIS MANUAL CONSTITUTE GUIDELINES ONLY. THEY DO NOT CONSTITUTE PART OF AN EMPLOYMENT CONTRACT, NOR ARE THEY INTENDED TO MAKE ANY COMMITMENT TO ANY EMPLOYEE."

Nonetheless, the majority noted that the handbook also contained "an elaborate system governing employee discipline and discharge." The tension between the promised procedure and the disclaimer created an ambiguity that should be resolved by a jury, it said.

The terms spelled out in the book "are inconsistent with the disclaimer at the beginning of the manual, in effect sending mixed messages to employees," the majority added.

Dissenting, Chief Justice Jeffrey Amestoy countered that by finding ambiguity in Champion's manual, the majority was issuing its own mixed message about the state of employment law in Vermont. He said that in a 1995 ruling, Ross v. Times Mirror, 665 A.2d 580, the court had warned against interpretations that conflict with the at-will doctrine, calling it "a private relationship."

Champion lawyer Eric E. Hudson, an associate in Burlington's Sheehey Furlong & Behm, called the inconsistency "a real blow to the status of at-will employment in Vermont."

Dillon's lawyer, Pietro Lynn, also of Burlington, asserted that the finding of ambiguity was consistent with state law.

Dillon had sued the apparel maker after she was encouraged to take a more challenging position within the company and was then soon fired for not meeting expectations. She claimed that when encouraged to apply, she was told that it would take several months to get up to speed and that Champion would give her extensive training. Instead, Dillon got just four days of training and was removed from the slot without prior notice after two months.

"In approaching this issue," the majority said, "we are mindful at the outset that employment-at-will relationships have fallen into disfavor." The court based its ruling, in part, on law review articles written by two out-of-state employment law professors.

One, Columbia University's Cynthia Estlund, authored the 1996 article "Wrongful Discharge Protections in an At-Will World," 74 Tex. L. Rev. 1655. In it, she said, "the legal right to fire for bad reasons has been virtually decimated."

Estlund opined that Champion apparently failed to accord Dillon the procedures outlined in the handbook. "I think the message is you can't raise employee expectations of fairness and then get yourself out of legal accountability." She also said, "If you announce procedures, follow the procedures."

The other cited author, Ohio State University professor Deborah A. Ballam, in 2000, wrote "Employment-at-will: The Impending Death of a Doctrine," 37 Am. Bus. L.J. 653. She said the Vermont court "made it clear that employers cannot take away a promise, the progressive discipline policy, with a disclaimer."

Vermont Law School professor Joan Vogel reacted with skepticism to the majority's claim that the at-will doctrine is on its way out. She questioned whether the court was truly prepared to follow through on its proposition by treating handbooks as adhesion contracts between unequal parties.

(1/8/03) - IBM Corp. and an ex-employee who sued the company, alleging that it fired him for making complaints of age bias, have come to terms.

Just what those terms are, neither will say. But federal court officials in Florida confirmed that the case, Mark D. Cring vs. International Business Machines Corp., has been settled.

One of Cring's charges was that the company tolerated a hostile atmosphere by keeping in its employ a manager who brought guns to work in violation of company policy.

Cring, 45, confirmed the case was over but declined further comment. His attorney, Ron Fraley of the Fraley Firm in Tampa, said Tuesday, ''The matter's been resolved.''

Many older workers let go from IBM have complained to various authorities that they believe the company's practices effectively discriminate against older employees, which IBM has denied. This is a rare case in which an individual has gotten some satisfaction. Technically, Cring's case alleged retaliation, but his difficulties with IBM began after he complained to authorities of an ongoing work environment hostile to older workers. He was fired in 1999 from IBM Global Services after 18 years with the company.

IBM spokeswoman Carol Makovich confirmed the matter had been resolved but said IBM has no further comment.

Structure of settling

A settlement is an agreement between the contending parties; most include a payment by the defendant.

The agreement is presented to the judge. If accepted and the parties carry out the terms, the case is later dismissed. The terms usually include an agreement not to tell how much money is involved or reveal details.

Clerks said Judge Charles R. Weiner, acting for the Middle District of Florida courts, sealed the file Dec. 17 and gave the parties until Feb. 17 to dismiss the case, noting ''this case has been settled.''

An earlier attempt at settlement fell apart last fall. Cring said then it did contain a money payment. He asked the court to schedule the case for trial. On Oct. 11, Chief Judge Elizabeth A. Kovachevich granted Cring's motion for reinstatement ''due to willful breach of good faith settlement'' and referred the case to the December trial calendar.

IBM and Cring then went back to talking and came to terms.

(1/8/03) - A federal judge has approved a $4.1 million settlement in a class action suit brought by former employees and executives of a Fort Washington, Pa., communications company who said they were cheated out of overtime pay.

Under the settlement, 83 employees of Aydin Corp. will be paid sums ranging from $1,468 to $193,936.

The suit alleged that Aydin violated the Fair Labor Standards Act when it classified the employees as salaried workers who were "exempt" from the FLSA's time-and-a-half overtime pay requirements, while nonetheless docking their pay when they were absent for part of a day.

U.S. District Judge Anita B. Brody of the Eastern District of Pennsylvania granted final approval of the settlement at a hearing in late December. The case is Oral v. Aydin Corp.

Brody also awarded fees of more than $1.2 million, which will be paid out of the settlement fund, to plaintiffs' attorneys Scott H. Wolpert and Charles J. Weiss of Timoney, Knox, Hasson & Weand.

Wolpert said he hopes the settlement sends a message to other employers about their responsibilities under the FLSA.

"Companies need to recognize that they cannot classify employees as exempt but nevertheless dock their pay if they are absent for part of a workday," Wolpert said. "To do so is effectively to treat the employees as if they are hourly, non-exempt workers."

According to court papers, the Aydin employees who opted in to the settlement included several former vice presidents, a former in-house lawyer and the former director of human resources.

Prior to the settlement, defense lawyers laid out a strategy in court papers for defending the case at trial that focused on offering justifications for docking the pay of lower-level management employees and denying the claims of all of the highest-ranking employees.

"While it cannot be disputed that there is evidence that Aydin did engage in a practice of docking certain salary-exempt employees for their partial-day absences, those docked or subject to being docked were in each instance below the level of director," attorney Larry J. Rappoport of Stevens & Lee wrote in a pretrial memorandum.

Rappoport said in the brief that the docked employees had "voluntarily elected not to work a full day, or use available make-up time or available paid leave to offset their partial-day absences."

But Rappoport also insisted in the brief that the docking policy was limited to lower-level managers and non-management employees.

"There is no evidence that employees within the higher levels of management and classified as director, assistant vice president, vice president or executive vice president level were docked or subject to an actual practice of partial-day docking," Rappoport wrote.

Rappoport complained in the brief that some of the executive-level former employees who opted into the lawsuit "have now put their hands into the cookie jar seeking payment for overtime work on a theory that they, too, were subject to an actual practice of partial-day dockings like the other salary exempt employees [in order to] permit them to be compensated for all overtime hours worked, whether real or imagined."

In the brief, Rappoport also insisted that Aydin did not have any "actual practice" of docking the pay of salaried employees for partial-day absences.

But plaintiffs' lawyers argued in their pretrial brief that the evidence would prove that Aydin routinely failed to pay overtime to its salaried employees when they worked more than 40 hours in a week, but nonetheless docked their pay in weeks when they logged less than 40 hours.

"Dating back to the late 1960s, Aydin in fact followed this policy and enforced a company-wide practice of docking the salary of those employees classified as exempt in the event of a partial-day absence unless ... the employee chose to charge the partial-day absence to sick or vacation time, or, if requested and authorized, made up such time other than during normal work hours," Wolpert and Weiss wrote.

An expert report attached to the plaintiffs' brief said that the Aydin employees who joined in the suit had been cheated out of more than $3.4 million in overtime pay, and more than $640,000 in lost interest on that pay.

In the settlement, the 83 workers will share a fund of more than $2.8 million.

Those with claims for less than $25,000 will be paid 100 percent of their lost overtime pay, while those with larger claims will be paid between 73 percent and 95 percent of their claim.

Plaintiff James Lour, who submitted the largest claim, for more than $265,000 in overtime pay, will receive 73 percent or $193,936, while Eric Anderson, who claimed $30,240 in lost overtime, will be paid 95 percent of the claim or $28,728.

The remainder of the $4.1 million settlement will go to offset the costs of five years of litigation and to pay the plaintiffs' attorneys.

(1/3/03) - A lawsuit that accuses CIGNA Corp. of discriminating against older employees in the way it converted a pension plan has been approved to become a class action.

The certification by Judge Dominic J. Squatrito in U.S. District Court in Hartford could make more than 10,000 present and former CIGNA employees part of the class, said Thomas G. Moukawsher, co-counsel for the plaintiffs and a partner in the Hartford law firm Moukawsher & Walsh.

The lawsuit that was filed in December 2001 stems from CIGNA's Jan. 1, 1998 conversion from a traditional pension plan to a "cash balance" plan.

In a traditional plan, benefits are based on formulas that multiply the number of years worked by a percentage of a worker's highest average salary - typically paid during the final years of employment. In cash balance plans, which have raised protests at many companies, the employer contributes a fixed percentage of a worker's annual pay to a cash-balance account.

CIGNA spokesman Wendell Potter said Thursday, "We believe we acted properly and in the best interest of our employees, and we expect we will prevail."

But plaintiffs' attorneys say CIGNA's conversion discriminated against older employees in the rate at which future benefits are earned. The company, they say, placed illegal conditions on workers' rights to earn future benefits.

Also, the cash balance plan forced employees to give up previously earned early retirement benefits in order to receive future contributions, the lawyers say.

In addition, the lawsuit says CIGNA did not inform employees, as required by law, about the disadvantages posed by the pension plan.

Potter noted that "the fact that the case was certified has nothing to do with the merits of the case."

The lead plaintiff is Janice C. Amara, who works in CIGNA's Retirement & Investment Services division in Hartford.

Duke Energy claimed victory in two lawsuits on Thursday. Duke claimed that an arbitration panel ruled in its favor in the ExxonMobil dispute.

Duke also said that 13 shareholder lawsuits were dismissed by a U. S. District Court judge.

(12/19/02) - In 1941 the New York Supreme Court expressed amazement at the bonuses pocketed by officers of American Tobacco Co., which a shareholder lawsuit had challenged as excessive. "To the wage earner eking out an existence they would be fabulous," the court wrote, "and the unemployed might regard them as fantastic, if not criminal." Even so, the court concluded, it wasn't the judges' place to say how much was too much.

That pretty much slammed the door on lawsuits challenging CEO pay. Now, six decades later, the chief justice of the Supreme Court of Delaware--where more than half the FORTUNE 500 are incorporated--may have opened the door a crack. In a roundtable discussion to appear in the January issue of Harvard Business Review, Chief Justice E. Norman Veasey suggests that corporate directors who don't meet certain standards when setting executives' pay could face legal liability. "Basically it's an invitation: 'Bring the court a case, please,' " says Charles Elson, an expert on corporate governance at the University of Delaware and the roundtable's moderator. "It's a monumental change in jurisprudence if, in fact, it occurs."

The legal road map Veasey seems to outline sidesteps the question "How much is too much?" instead asking, "Were directors acting in good faith?" Corporate law has traditionally interpreted "good faith" as refraining from blatant self-dealing ("I'll boost your pay if you buy me a yacht"). But Delaware judges have lately been expounding a broader definition. Warns Veasey in HBR: "If directors claim to be independent by saying, for example, that they base [compensation] decisions on some performance measure and [then] don't do so, or if they are disingenuous or dishonest about it, it seems to me that the courts in some circumstances could treat their behavior as a breach of ... good faith."

Although Veasey's best-known opinion on executive pay seems to throw cold water on shareholder suits--he rebuffed plaintiffs who sued Disney's board for its $90 million severance payment in 1996 to Michael Ovitz--the judge has implied that the ruling left the door open to other suits. "The complaint was presented in an awful manner," he explains in HBR. "It was a pastiche of prolix hyperbole--it even had a cartoon. But we felt there could have been something in it." For instance, he notes, "although the company had retained an outside expert, that expert later admitted that the board had never looked at what it would cost to buy Mr. Ovitz out."

Veasey advises compensation committees to hire their own advisors and lawyers and to demonstrate independence from management "as a guard against anything that might happen to them in court from a properly presented complaint." Consider that a warning shot to America's boards, says William Allen, director of New York University's Center for Law and Business and a former Delaware Court of Chancery judge. "He's saying, 'The courts are here, and we're watching.' "

(12/15/02) - If you like having your own retirement savings account at work, probably called a 401(k), you should love having your own pension.

Maybe not.

"Millions of Baby Boomer employees are going to be devastated by this," said Kathi Cooper of Bethalto, Ill., north of St. Louis.

Watch out, says Cooper, if you get a notice from your boss that says you're being offered thousands of dollars to start an individualized pension.

Cooper, 52, is the lead plaintiff in a class-action suit against her employer, International Business Machines Corp., challenging IBM's decision to convert its traditional pension to a so-called cash-balance pension.

A traditional pension pays prescribed monthly income to retirees, based on age, years of service and, in a typical case, average compensation for the last five years of employment.

Cash-balance pensions make no such promise. They provide company contributions for each employee to a hypothetical account that builds through annual employer contributions and interest. The phantom cash-balance account materializes at retirement.

Critics charge that the method of establishing the initial cash contribution and the process for building the phantom account leave older workers short of what they would need to purchase, at age 65, an annuity equal to the previously promised pension benefit.

The long-simmering controversy regarding cash-balance pensions received some dry tinder last week.

Reacting to complaints that employers recasting their pensions to save money were discriminating against older workers, the Treasury Department proposed new regulations.

The rules affirm that pension plans and alterations in pension plans may not discriminate according to age. Ironically, the rules also make it easier for employers to abandon traditional pensions in favor of cash-balance pensions, a move that is likely to leave older workers worse off.

"The new regulation does not guarantee that an older employee will receive a contribution to a cash-balance plan as valuable as the value of the benefit they would have accrued in a traditional defined benefit plan," said Ian Kopelman, a benefits lawyer in Chicago.

The gap is likely to be especially evident in older workers near retirement.

Of 945 major employers, 72 percent, or 680, provide defined benefit pensions, according to a recent study by benefits consultant Hewitt Associates in Lincolnshire. Of the 680 employers providing pensions, about 150 companies, or 22 percent, offer the cash-balance form of pension, up from 6 percent in 1995.

Dan Schwaillie, a Hewitt consultant, said companies continue to implement cash-balance plans and conversions, despite a decision by the Internal Revenue Service in 1999 to stop issuing approvals for the plans as eligible for favorable tax treatment.

William Sweetnam, benefits tax counsel in the Treasury Department, said about 300 letters by companies seeking approval of cash-balance pension plans are pending since the IRS halted the approval process in 1999.

"We wanted to get the determination process up and running again," he said.

The process of challenging cash-balance plans has been running full-steam regardless of the IRS moratorium. Cooper said it took her and her fellow employees just a few days in 1999 to calculate their losses under the IBM pension conversion and set up a Web-based employee grapevine.

"Almost overnight, we had a method of communicating," she recalled. The IBM plaintiffs later retained a public relations firm.

Workers affected by cash-balance conversions include thousands of senior employees at companies who are well-educated and highly sensitive to retirement issues as they near their intended retirement. Some of the angriest workers claim their company's promise to subsidize their early retirement was betrayed in the cash-balance conversion.

"The critical factor in the move to cash-balance plans has been to eliminate the early retirement plans," said Karen Ferguson of the Pension Rights Center in Washington.

Cooper says the IBM conversion would cost her $400,000 in retirement income.

The issues are complex--so complex that a few years ago consultants promoting cash-balance plans to employers as cost-cutting schemes boasted that workers would seldom figure out the losses they faced.

Those days are over. Extensive press coverage, congressional hearings, increasingly knowledgeable employees and plaintiffs lawyers--not to mention numerous Web sites and chat rooms devoted to cash-balance complaints--have diminished chances for stealth pension conversions.

In the coming year, debate over cash-balance pensions will increase.

Rank-and-file employees are doing the math. High-profile bankruptcies and corporate scandals have left employees more suspicious of their own bosses.

"We anticipate there will be an avalanche of protests, because employees know now that this is wrong," said Ferguson.

The issue has political legs for Democrats, as a way to bash the Bush administration or the Republican-controlled Congress.

Meanwhile, the stock slide of the last three years has raised doubts in the minds of many workers of their ability to manage their retirement savings in 401(k) accounts.

Several surveys of employees indicate increasing interest in traditional pensions, which are managed by employers.

Pensions, including cash-balance pensions, require no investment decisions by employees. There's no chance that you will blow your retirement income by personally speculating in stocks.

Unlike a 401(k), whose retirement payoff may be subject to the whims of markets, pension benefits are insured by the federal Pension Benefit Guaranty Corp. Up to $43,000 a year may be paid if a company pension fails.

Cash-balance plans may be attractive to younger workers, because they can see their hypothetical account grow and may be able to transfer their account to another employer. Generally, traditional pension benefits remain with the employer until the worker reaches retirement age.

Attorney Kopelman noted that employers are not required to provide employee pensions. But many companies are looking more fondly at pensions, despite the current worries about pension underfunding.

Assuming the stock market is at a low point in its cycle, many employers would like to stow cash in pensions that could earn a greater return than cash invested in their business operations. A successfully managed pension fund, unlike hundreds of employee 401(k) accounts, can boost corporate profits.

Facing outrage from employees over cash-balance conversions and their own desire to retain the pension investment pot, many employers, including IBM, have offered relief for older workers. In some cases, older employees are grandfathered in the traditional pension or allowed to choose which pension is better.

The next step in the controversy is expected early next year, when the Treasury Department issues new regulations on disclosures firms must make to employees about cash-balance conversions. U.S. law does not require employers to calculate for each employee the financial effect of the conversion.

"The law is not strong," said David Certner of AARP. "We pushed for more individualized disclosure."

(12/11/02) - In a ringing victory for special-interest lobbyists, a federal court in Washington has thrown out a lawsuit seeking access to the records of Vice President Dick Cheney's energy task force. In reaching its conclusion the court dismissed the investigative authority of the General Accounting Office and, by extension, of Congress. The ruling is wrong on the law and a blow to the cause of ethics in government. It should be reversed on appeal.

The General Accounting Office sued to force Mr. Cheney to release records identifying who met with his task force as it developed the Bush administration's energy policy. The accounting office is acting at the behest of members of Congress who charge that the task force met with Republican campaign contributors from big business, but with almost no environmentalists, when it drew up its package of industry-friendly energy proposals.

Judge John Bates, who was named to the bench by President Bush, refused to consider the merits of the case, holding instead that the accounting office had no standing to sue. But his decision ignores the fact that the General Accounting Office was established by Congress for the express purpose of helping it to investigate and analyze matters like this. The law requires the executive branch to furnish its records when asked to do so.

The Bush administration hailed the ruling as an endorsement of the president's right to "receive unvarnished advice." But the court did not say the administration had a right to withhold the information, only that the accounting office is not the proper party to raise the issue.

From the beginning, the most troubling part of this case has been the administration's lack of appreciation for the concept of open government. This case is not about the advice the president receives from trusted advisers in the inner sanctums of the White House. It concerns access to basic information about a task force that took extensive testimony from members of the private sector. The public has a right to know what businesses and special interests it heard from, and whether Mr. Cheney was seeking information from every side of the issue.

The dismissal of the accounting office's suit comes while another Washington court is considering a challenge to the McCain-Feingold campaign finance law. Both cases focus on the disturbing role campaign contributions play in setting government policies. The administration may choose to see this week's decision as a win, but it is a crushing loss for the public's right to know.

WASHINGTON - A federal judge on Monday rejected an attempt by the watchdog arm of Congress to obtain records of secret meetings last year between Vice President Dick Cheney's energy task force and industry executives who helped the White House draft its energy policy.

It was the second victory in four days for White House lawyers, who have argued that Cheney and President Bush need to hear confidential advice. The task force helped devise an energy policy that Bush tried but failed to push through the last Congress. He is expected to urge it again in the next Congress, in which Republicans will control both the Senate and the House of Representatives.

The lawsuit by the General Accounting Office represents a "struggle between the political branches that is historically unprecedented," U.S. District Judge John Bates wrote in his decision Monday. He said he shared the judiciary's historic reluctance to referee disputes between Congress and the White House over authority and power.

"Such an excursion by the judiciary ... would fly in the face of the restricted role of the federal courts under the Constitution," Bates, whom Bush appointed, wrote in a 41-page opinion.

The dismissal came on the heels of a ruling Friday by a federal appeals court that lifted a deadline for the White House to produce documents in another lawsuit seeking access to the energy task-force records.

"We're very disappointed with the judge's decision," GAO Comptroller General David Walker said of Monday's ruling. Walker, who had urged the suit, said agency attorneys would review the ruling and consult congressional leaders before deciding whether to appeal.

The Bush administration hailed Monday's decision.

"Allowing the GAO to sue the vice president without legal authority would improperly interfere with the president's ability to formulate the best possible policies for the American people," said Justice Department spokeswoman Barbara Comstock.

At the time the suit was filed, congressional and environmental critics were accusing Cheney of soliciting recommendations from the energy industry and paying little heed to consumer and environmental advocates.

The White House energy plan called for reducing regulations on nuclear power plants, promoting coal as fuel and expanding oil and gas drilling on public land, including a wildlife refuge in Alaska.

Democrats who had encouraged Walker's suit denounced the decision as politically motivated and demanded that it be appealed.

"It is a convoluted decision by a Republican judge that gives Bush and Cheney near-total immunity from scrutiny," said Rep. Henry Waxman of California, the senior Democrat on the House Committee on Government Reform.

Many legal scholars thought the unprecedented lawsuit was risky from the start. Walker decided to file it without a vote from Congress or the House Government Reform panel to sue Cheney. Congress hadn't even subpoenaed Cheney's documents.

Bates said Congress' lack of involvement influenced his decision.

"This case, in which neither a house of Congress nor any congressional committee has issued a subpoena for the disputed information or authorized this suit, is not the setting for such unprecedented judicial action," he wrote.