Presidential settlements.

Author:Zimmerman, Adam S.
Position::I. The Rise of Presidential Settlements C. Modern Presidential Settlements 2. The Holocaust Settlements through Conclusion, with footnotes, p. 1427-1461
  1. The Holocaust Settlements

    Revelations that banks, businesses, and insurers wrongfully appropriated Holocaust victims' assets spurred an international movement for restitution that produced two kinds of presidential settlements: those brokered with the assistance of private lawyers, inside the courts, and those crafted without private counsel, outside the courts. Afterwards, however, many observers claimed that settlements reached without the aid of private counsel were worse than those produced by the "aggressive" and "adversarial" positions taken in court--creating unwieldy settlements that struggled to compensate victims effectively and suffered from conflicts of interest. (168)

    After investigative news reports disclosed that UBS and Credit Suisse confiscated Jewish bank accounts, a revelation that sparked a global movement for mass restitution, private lawyers and, ultimately, the Clinton administration pushed for restitution from private German, Swiss, and Italian companies. (169) Within a year, lawyers commenced several class actions in the Eastern District of New York. (170) Lawyers for the Holocaust victims--including many prominent leaders of the plaintiffs' bar--sought restitution, claiming billions on behalf of more than two million claimants and alleging novel theories of unjust enrichment and tort law. (171)

    At the same time, President Clinton pushed to settle the litigation through diplomatic channels. President Clinton sent then-Undersecretary of State Stuart Eizenstat to mediate talks between plaintiffs and the banks. (172) The presence of administration officials proved important to the final settlement, because deep divisions existed among plaintiffs' attorneys and other public interest organizations about how the case should proceed. (173) Eizenstat found common ground among the plaintiffs and shaped an outcome that promised some measure of justice for victims, while advancing U.S. interests. (174)

    The result produced several settlement funds inside and outside the court system. Inside the courts, Swiss banks dedicated $1.25 billion to a settlement facility overseen by a special master, who would divide claims among several categories of victims under a distribution plan. (175) Eizenstat later claimed that the court-centered process to settle the Swiss bank cases, while successful, proved too cumbersome for the federal judiciary. Instead, he claimed, it should have been resolved by diplomats in the executive branch. (176) Nevertheless, despite the size and complexity of the settlement, the Swiss bank fund was later heralded for its ability to distribute awards effectively. (177)

    By contrast, President Clinton's separate out-of-court effort to compensate similarly situated victims of takings by large European insurers--called "the most bitter and intense negotiation of the entire saga" (178)--struggled to pay out awards. Diplomats, insurance commissioners, and businesses pointedly left lawyers and victim representatives out of the settlement process. (179) The final resolution resulted in a fund, the International Commission on Holocaust Era Insurance Claims (ICHEIC), which promised swift distribution using tremendous economies of scale and without the conflict and uncertainty of litigation. (180) In the end, ICHEIC provided $306 million to more than 48,000 Holocaust survivors and their heirs. (181)

    Observers noted, however, that ICHEIC's failure to include attorney representatives in the process harmed the claimants purportedly served by the settlement. (182) Claims processors struggled to identify account holders under an opaque process; they relied on rigorous evidentiary rules that often slowed down the claims handling process to a "snail's pace." (183) Victims struggled to document dormant accounts--closed for over forty years. Claimants' conflicting interests in the awards also slowed payment. Those with direct evidence of lost accounts--but far removed from the immediate victims--competed for funds with more destitute victims in need of quick payouts. ICHEIC would later admit that the commission "sacrificed time efficiencies for process effectiveness," (184) a choice ordinarily made with input from claimants' legal representatives. Years after ICHEIC opened and after accumulating more than $40 million in expenses, ICHEIC had settled only a tiny fraction of the 79,000 claims presented to the commission. (185) Unlike the Swiss bank settlement, which enjoyed greater success in processing claims, (186) more than 60% of the 79,732 eligible claims still awaited processing and only 4492 claims--5.5%--had received payment offers nine years into the ICHEIC process. (187) Despite his support for ICHEIC, even Stuart Eizenstat later acknowledged its "slow and costly start." (188)

    As European banks, insurers, and other businesses pushed for a final resolution to the litigation pending in U.S. courts, Clinton's diplomatic corps similarly grew concerned about new legislation in Congress that would give private parties more power to pursue private litigation against foreign countries and businesses--what some called "plaintiff's diplomacy." (189) But it was far from clear that case law like Dames & Moore permitted the President to terminate private lawsuits against defendants in the Holocaust litigation. Unlike earlier cases, which involved foreign claims against foreign states, the defendants in the Holocaust litigation operated private businesses in the United States. (190)

    To terminate the U.S. litigation, the White House promised European defendants that the government would make appearances in U.S. courts to argue that the cases should be dismissed as "political questions" that interfered with executive power. (191) Even though the President, like in Dames 6? Moore, never received express authority from Congress to extinguish any claims, the Supreme Court ultimately held that state lawsuits against foreign defendants were preempted because they violated important "executive policies." (192) Following the strategy's success in the courts, one State Department official highlighted the unprecedented agreement as a model for resolving "private litigation in U.S. courts," where the President wishes to remove "an irritant from relations with an important ally." (193)

  2. The Lockerbie Settlement

    The Lockerbie settlement, like the Algiers Accords and the Holocaust settlements, raised difficult questions about conflicts of interest, appropriate representation, and distribution of awards in a presidential settlement. The Lockerbie settlement, however, proved that too much participation may raise as many problems for presidential settlements as too little. Family members received unprecedented access to bargain with a foreign nation for mass compensation, based in part on new legislation that expressly granted parties the right to sue foreign nations for supporting terrorism. (194) The deal's terms, which hinged on the recognition of a foreign power, also impacted diplomatic functions traditionally thought to reside within the exclusive domain of the executive.

    Pan Am 103 broke apart over Lockerbie, Scotland, after a bomb exploded in its forward cargo hold, killing all 259 people aboard and eleven people on the ground. (195) Libya ultimately claimed responsibility for the attack as a response to the 1986 U.S. airstrikes against terrorism-linked targets in Tripoli.

    Efforts to obtain compensation through U.S. courts, Congress, and the United Nations all foundered. Victims could not successfully sue Libya for its involvement because, at the time, the Foreign Sovereign Immunities Act barred claims against foreign nations for human rights violations or acts of terrorism. (196) In response, Congress passed Civil Liability for Acts of State-Sponsored Terrorism (known as the "Flatow Amendment") to permit families to sue foreign nations that provided material support to terrorism. (197) But even plaintiffs who brought suits under this new "terrorist exception" to foreign sovereign immunity were often unable to collect the money awarded to them without help from diplomats in the executive branch. (198)

    At the same time, families sought justice through the executive branch, pushing successive administrations to bring the Libyan agents charged with the terrorist attack to justice. (199) Even as victims groups, the United States, and the United Kingdom pushed to hold the agents criminally accountable for the bombing, (200) the problem of compensation complicated diplomatic negotiations with Libya, presenting new conflicts of interest, creating obstacles to fair representation, and frustrating the appropriate division of awards.

    First, negotiations with Libya raised conflicts of interest between parties entitled to compensation. Pan Am's liability insurer (which had paid the families nearly $500 million), (201) the aircraft's hull insurer, and Pan Am's trustee in bankruptcy, for example, all pursued claims against Libya. (202) The United States and British governments also expended enormous resources in the investigation and trial of the bombers. No one knew what proportion of the families might support any settlement terms worked out privately or publicly with Libya.

    Second, officials in the Clinton and Bush administrations struggled to determine how to involve victims in negotiations over compensation. Some State Department officials originally speculated about a proper compensation figure without the Pan Am 103 families. (203) When the victims' families objected, the United States and the United Kingdom faced the key policy question of how much private parties should control the outcome of a matter of international importance. (204) In deference to the wishes of the families, the two countries ultimately agreed that the families' legal representatives could try to reach a settlement directly with Libya, without excluding the possibility that the governments might need to reenter the picture. (205) The...

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