AMR fires opening shot in court battle with workers

By Nick Brown

NEW YORK (Reuters) - American Airlines on Monday kicked off a week-long court hearing on its bid to abandon union contracts, telling a judge that its bankrupt parent, AMR Corp, cannot survive without major concessions from its labor force.

Hundreds of lawyers, airline workers and others filled the courtroom and two overflow rooms in U.S. Bankruptcy Court in Manhattan for the start of the hearing, as other unionized workers rallied outside the courthouse.

Cordoned off by police, the workers held signs and chanted for fairer work terms and against AMR's plan to cut about 13,000 union jobs.

The hearing is AMR's chance to convince Judge Sean Lane not only that the company desperately needs labor concessions, but that its unions have unreasonably rejected prior attempts to negotiate those concessions. AMR filed for Chapter 11 in November, citing uncompetitive labor costs.

In opening statements, AMR lawyer Jack Gallagher said the company needs 20 percent across-the-board reductions in employee costs, half of which must come from medical benefits.

AMR spends three times as much annually on medical benefits as the average lower-cost carrier, like Southwest Airlines, he said.

"It's not the unions' fault we're in bankruptcy, but it's not about whose fault it is," Gallagher said. "It's about the facts of our business."

Edgar James, a lawyer for the Allied Pilots' Association, which represents about 10,000 AMR pilots, said AMR's proposed business plan is unfair, in part because AMR has not done enough to explore possible merger or consolidation options.

"What everyone believes is going to occur is they're going to get out of this bankruptcy and consolidate with someone," yet the company has told the pilots' group it has not considered that option, James said.

In an unusual step in bankruptcy, the pilots' union and two other major AMR unions on Friday said they had struck a deal with US Airways Group Inc to support a potential merger between US Air and AMR. They said the deal could save more than 6,000 jobs and are pushing AMR to consider it.

US Airways Chief Executive Doug Parker cautioned his employees in a letter on Friday that the union deal does not mean a merger is in the works. He noted that a deal would need support from the AMR creditors, management team and its board of directors.

AMR has long shunned merger interest from US Airways.

Some of AMR's expert witnesses were expected to testify on Monday afternoon, along with the company's chief restructuring officer, Bev Goulet.

After the hearing wraps up, the company and its unions have another two weeks to negotiate. If new terms are still not reached, the unions will have a chance to present their case in court in May.

Regardless of how Lane rules, AMR must keep negotiating for a consensual deal with its unions. A ruling by Lane granting AMR's request to break its contracts would allow AMR to impose its own unilateral labor terms while those negotiations go on.

The bankruptcy is In re AMR Corp et al, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463.

(Reporting By Nick Brown; editing by Carol Bishopric)

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La insurer asks for Supreme Court appeal on claims

NEW ORLEANS (AP) -- Louisiana's property insurer of last resort has asked the nation's highest court to hear an appeal of a $104.6 million award to 18,500 policyholders who sued over slow adjustment of hurricane claims in 2005.

The action by Louisiana Citizens Property Insurance Corp. came as an order was issued to the East Baton Rouge Parish sheriff to get the money from the insurer's bank.

In a statement, plaintiff attorney Fred Herman said a state district judge in Jefferson Parish would decide how to divide the money once it is turned over by Regions Bank.

Citizens' chief executive, Richard Robertson, said a request for the U.S. Supreme Court to hear the case was filed Wednesday. There was no indication of when the court might decide to accept or reject the request.

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Brazil shifts court for Chevron spill cases

By Leila Coimbra and Jeb Blount

RIO DE JANEIRO (Reuters) - A Brazilian judge moved two $11 billion civil cases against Chevron and drilling-rig operator Transocean related to an offshore drilling accident and spills to a different court in Rio de Janeiro, a decision that removes a crusading prosecutor from the cases.

The momentum is shifting in the legal battle stemming from a rupture in November at a well that Transocean was drilling in the Frade field, which Chevron operates.

The latest development, published in a court filing on Friday, comes on the heels of another decision in favor of the companies earlier this week from a separate court, in which a judge denied a request to bar the two companies from operating in Brazil.

Eduardo Santos de Oliveira, a federal prosecutor based in the interior of Rio de Janeiro state, filed two 20 billion reais ($11 billion) lawsuits against U.S. oil company Chevron and its contractor Transocean after a November spill of 2,400 to 3,000 barrels and a related March seep in the same field.

Friday's decision to move the two civil cases does not change the content of the charges, but it removes the cases from Oliveira's turf and hands them to another team of prosecutors.

The decision did not address the criminal charges that Oliveira also brought against the companies and 17 of their employees that could carry jail sentences up to 31 years.

Oliveira told Reuters he will appeal the decision.

"I remain convinced that they should be prosecuted here close to where the crimes occurred," he said.

Judge Tiago Pereira Macaciel said in a court filing released on Friday that "the magnitude of the environmental damage exceeds the area subject to the competency of Campos ... making it a regional damage."

Chevron Corp's head of media relations, Kurt Glaubitz, said Chevron Brasil Upstream Frade Ltd, its local subsidiary, was pleased with the court's decision.

Guy Cantwell, communications chief for Transocean, said by email that the company also questioned the validity of a second civil lawsuit, saying the charges lacked technical grounds.

Chevron owns 52 percent of the Frade field, Brazil's state-led oil company Petrobras owns 30 percent and a Japanese group led by Inpex Corp and Sojitz Corp owns 18 percent.

($1 = 1.8 reais)

(Reporting by Leila Coimbra; Writing by Reese Ewing; Editing by Carol Bishopric and Tim Dobbyn)

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U.S. asks court to force J&J executive to testify

By Erin Geiger Smith

(Reuters) - The federal government has asked a court to force Johnson & Johnson (NYS:JNJ - News) executive Alex Gorsky to testify in a lawsuit involving allegations of kickbacks and Medicaid fraud.

The U.S. Department of Justice said in Massachusetts federal court filing on Wednesday that Gorsky has "relevant knowledge" concerning the marketing of the anti-psychotic drug Risperdal to long-term care pharmacy Omnicare, Inc and about "allegedly illegal payments J&J made to induce Omnicare to purchase and recommend" the drug.

The government sued the company in January 2010.

In February, J&J announced that Gorsky will take over as the company's chief executive, effective April 26. During the late 1990s and early 2000s, the period covered by the government's lawsuit, Gorsky served as vice president of sales and marketing and then president of J&J's Janssen pharmaceuticals unit.

J&J has refused to make Gorsky available to testify, saying he has "no reasonable connection to the subject matter" of the lawsuit, court filings show.

The government's suit is not the only legal action J&J has faced regarding Risperdal. Earlier this week, an Arkansas state judge ordered the company to pay a $1.1 billion penalty after a jury found it guilty of using fraudulent tactics to sell the drug. In January, the company said it would pay $158 million to settle a Texas lawsuit accusing it of improperly marketing Risperdal to patients in the state's Medicaid program.

J&J did not immediately respond to a request for comment.

The case is U.S. v. Johnson & Johnson, et al., U.S. District Court for the District of Massachusetts, No. 07-10288.

(Reporting By Erin Geiger Smith; editing by Richard Chang)

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Court rejects order for mentally ill housing in NY

NEW YORK (AP) -- A federal appeals court on Friday reversed a judge's order making the state provide apartments and small homes to thousands of mentally ill people, questioning the scope of the order and delaying a resolution to a controversy that even the court acknowledged will continue.

The 2nd U.S. Circuit Court of Appeals in Manhattan said the Albany-based plaintiff — Disability Advocates Inc. — lacked standing to bring the claim because it was a non-membership organization with limited interaction with the people it claimed to represent. The nonprofit is contracted to provide services to New York's Protection and Advocacy System.

The ruling takes the 9-year-old case back to the starting block on an issue that is being grappled with by several other states, including Connecticut and Illinois.

Lawyers for Disability Advocates, which filed its lawsuit in 2003 against New York's governor and various state agencies, did not immediately return messages seeking comment. Messages sent to lawyers representing the state also were not immediately returned.

The ruling negates a 2010 order by U.S. District Judge Nicholas Garaufis in Brooklyn calling for the state to create 1,500 housing units in New York City over three years, enabling people to leave group homes and live in homes scattered throughout the city.

Garaufis had ruled that the state must provide services to the disabled "in the most integrated setting appropriate to their needs," enabling them to interact with people who aren't disabled as much as possible.

The judge said Disability Advocates had proven in a bench trial that virtually all its constituents were qualified to live in "supported housing," including apartments where they could continue to receive needed services.

Although the appeals court tossed out the case without addressing challenges to the merits of Garaufis' ruling, it said the appeals judges "do have concerns about the scope of the proposed remedy" and it acknowledged that the U.S. government has already said it would re-file the lawsuit if Disability Advocates was removed from the case.

The appeals court said the private nonprofit agency, which it repeatedly referred to as "DAI," could not sue over violations of the Protection and Advocacy for Mentally Ill Individuals Act of 1986, created to protect the rights of individuals with mental illness. The court also rejected an effort by the U.S. government to join the case six years after it began.

"Tellingly, there is scant evidence in the record that the individuals with mental illness whom DAI purports to represent have the power to elect its directors, make budget decisions, or influence DAI's activities or litigation strategies," the appeals court wrote. "Finally, the record does not establish that DAI ever notified its 'constituents' or any of their legal guardians that it was filing this suit purportedly on their behalf."

The 2nd Circuit said Disability Advocates could still provide representation to individuals with mental illness and litigate those cases in the names of those individuals but could not bring a lawsuit on behalf of the entire class.

And the court added: "We are not unsympathetic to the concern that our disposition will delay the resolution of this controversy and impose substantial burdens and transaction costs on the parties, their counsel, and the courts."

The litigation has put in the spotlight the adult home system that emerged nationwide after people with mental illness in the 1960s and 1970s were moved out of large, regimented institutions. New York moved most patients out of state-run psychiatric hospitals, settling them into community or profit-making adult homes.

According to the court documents, the state has 380 adult homes; New York City has 44. Some house more than 120 to 200 people.

During the trial, witnesses testified that the large homes were sometimes more restrictive than the mental institutions they replaced. They told of lines of 200 residents waiting for medications and residents having virtually no privacy. In addition, witnesses said, the homes foster "learned helplessness" because residents are not allowed to cook, clean, do laundry or manage their own finances.

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Court appearance Monday for JetBlue pilot put off

LUBBOCK, Texas (AP) -- A judge in the case of the JetBlue Airways pilot accused of interfering with a flight crew by disrupting a Las Vegas-bound flight after leaving the cockpit has put off hearings set for Monday.

U.S. Magistrate Judge Clinton E. Averitte granted a motion Friday from Dean Roper, the Amarillo attorney for 49-year-old Clayton Osbon.

Averitte's order allows Osbon to request a preliminary examination and detention hearing later.

Another federal judge Wednesday ordered Osbon undergo a psychiatric evaluation to determine if he's competent for trial and whether he was legally sane March 27 when passengers wrestled him to the floor.

Witnesses said the pilot left the cockpit and ran through the plane's cabin yelling about religion and terrorists.

The plane, en route from New York, made an emergency landing in Amarillo.

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Court upholds penalties in NM mining accident

SANTA FE, N.M. (AP) -- A federal appeals court has upheld penalties against a mining company for regulatory violations in a 2009 New Mexico accident that severely injured a worker.

A three-judge panel of the Denver-based 10th U.S. Circuit Court of Appeals on Wednesday affirmed $66,000 in civil penalties imposed against Mainline Rock and Ballast, Inc. by the Mine Safety and Health Administration.

A miner at the company's quarry near Encino in Torrance County was injured after getting caught in a conveyor.

The federal agency penalized the company for not having a protective guard around certain moving parts of the conveyor and for failing to quickly report the accident.

The miner suffered permanent damage to his kidneys, and spent two and a half months in the hospital recovering from internal injuries and broken bones.

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