Judge Allows Class Action Against Tyco, Strikes Down Another Suit

A federal judge has allowed a shareholder class action lawsuit against Tyco International Ltd. to proceed, but he rejected a related shareholder lawsuit.

According to the Wall Street Journal, U.S. District


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Court Judge Paul Barbadoro in Concord, N.H. threw out a shareholder derivative lawsuit against most of Tyco's current directors and many former directors and officers, saying it was not allowed under Bermuda law. Tyco is registered in Bermuda and managed from West Windsor, N.J. The company headquarters was once located in New Hampshire.

Tyco is immersed in legal actions connected to the fraud scandal in which former Chief Executive Officer L. Dennis Kozlowski and ex-Chief Financial Officer Mark Swartz are accused of looting the company of about $600 million. They deny wrongdoing and are awaiting a retrial; the first trial ended in a hung jury. Tyco has admitted to a number of accounting tricks that allowed it to inflate income by $1.15 billion from 1998 to 2001.

The class action, which was allowed to go forward mostly unchanged, seeks damages from Tyco, Kozlowski, Swartz, two former directors, one former officer and auditor PricewaterhouseCoopers LLP. The lawsuit claims securities laws violations and looting by Kozlowski and Swartz. Barbadoro did, however, throw out several claims against former Tyco director Michael Ashcroft.

In a statement, the company said it was pleased about the dismissal of the derivative suit, adding that "this is a situation where the reputation of a strong company was temporarily undermined by the misbehavior of a few of its former top executives."

Tyco spokesman David Polk said of the shareholder class action that it was "important to note that the court's ruling in the remaining case is a preliminary ruling that addresses only certain legal issues. The facts and merits of the case have yet to be examined. … We believe we have a very strong case, and we are prepared to defend it vigorously."

Jay Eisenhofer, a plaintiff attorney in the class-action case, told the Journal that the decision is "a big shareholder win and a major step forward in the case." He added: "Tyco's attempt to shirk responsibility for the looting and fraud that was the company's standard operating procedure throughout Dennis Kozlowski's reign was completely rejected by the court."

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