When the 2010 James Zadroga 9/11 Health and Compensation Act set up a second, broader 9/11 fund to help compensate many of the first responders that got sick in the years after the attack, the appointed special master Sheila Birnbaum had to start up the operation from almost thin air.
Working from her own New York office at Quinn Emanuel Urquhart & Sullivan LLP with the help of deputy special master Debbie Greenspan, who had helped run the first victims’ compensation fund, she set about creating the fund’s infrastructure: picking personnel, crafting the methodologies for compensating victims and writing out the claims policy.
To date, the fund has processed most of the claims it has received — but there is still work to do, which Birnbaum admits will likely move forward under another special master.
“I think another five years would be a little much for me,” Birnbaum said.
The Latest Hope
Buried within the 2,009-page omnibus spending bill that the president signed into law in mid-December was the reauthorization of the 2010 James Zadroga 9/11 Health and Compensation Act, which will keep that fund currently being overseen by Birnbaum running for another five years.
And buried within that — without having been debated at any congressional hearings — was the authorization of the new $1 billion terrorism victim compensation fund, which is being funded initially by the BNP Paribas penalties. This fund should cover a broader array of victims, including Salzman, the Hegnas and the Levins.
While the new fund won’t erase all of the existing judgments, it will go a long way to ensuring that all victims with final judgments get at least something for their pain and suffering, contends Newberger, who helped lobby for and craft the legislation. It is the first fund to apply to any victims of state-sponsored terrorism.
As currently structured, the fund will make payments on a pro rata basis that will afford victims about 10 cents on the dollar — or 30 to 40 cents on the dollar if assets from certain pending cases make their way into the fund. Additional payouts from the fund will be considered only after everybody is paid their pro rata share.
“They have to wait until everybody else gets 30 cents on the dollar,” Newberger said. “Nobody moves ahead in the line, nobody moves to the back of the line.”
In some ways, the new terrorism fund legislation is also Congress’ attempt to fix problems created by previous diplomatic and legislative efforts.
For one, the new fund will offer long-barred compensation to victims of the Iranian hostage crisis, where 52 American diplomats and civilians were held captive and tortured for 444 days between 1979 and 1981. For years, many of those victims’ efforts to sue for compensation for their suffering were blocked by a provision in the Algiers Accord that freed them. As part of their release, the U.S. promised to keep any suits based on the incident from playing out in court.
Five years after their release, the hostages received about $50 for each day spent as hostages. Under the new legislation, though, they will be entitled to $4.4 million in compensation, or $10,000 for each day held in captivity.
The use of the BNP Paribas settlement for the fund is essentially a roundabout way of getting Iran to pay for some of its outstanding judgments. U.S. Sen. Johnny Isakson, R-Ga., praised the legislation in a news release on Dec. 20 — the 35th anniversary of the release of the hostages — saying, “We know it's a bittersweet day having the memory of captivity combined with joy of knowing there finally will be compensation from the Iranians.”
Additionally, the fund in some ways attempts to fix the problems with judgment recovery that have arisen since Congress enacted a terrorism exception to the Foreign Sovereign Immunities Act about two decades ago. While the exception encouraged victims to go to court and sue states such as Libya and Iran, it failed to provide a good avenue for recovering actual funds.
“I think that the problem Congress was solving was a problem Congress felt responsible for,” said Newberger, noting that judges have expressed frustration that they were given this job by Congress and they weren’t getting anywhere with the enforcement of judgments.
The new fund highlights the delicate balance of bureaucracy and diplomacy that must be reached when trying to compensate terrorism victims, according to experts.
“A fund like this creates a very difficult balance between a need and desire to compensate deserving victims of terrorism with trying to make it comprehensive, equitable, predictable and consistent with our national security interests of protecting sovereign immunity,” said John B. Bellinger III, an Arnold & Porter LLP attorney who served as the legal adviser to the Department of State during the George W. Bush administration. “The U.S. has grappled with ways to do that over the years.”
Still, some in the industry think Congress should use its fund-creating powers sparingly, given that they can all too easily leave someone behind.
“I think these programs should remain very rare. These special compensation funds should be limited in number, and should not be encouraged,” said Feinberg, arguing that “the litigation system works pretty well.”
It’s a sentiment echoed by Steven Perles, an attorney who also worked on the new fund legislation and who has represented terrorism victims in numerous high-profile court cases, including a rare handful that secured settlements and judgments.
The legislation includes a provision that will allow victims whose own cases and investigations help the DOJ impose new penalties to keep a certain percentage of those fines outright, and Perles hopes that will help “mobilize resources in the private sector to hunt dirty money.”
“This is not about compensation,” Perles said. “It’s about deterring future acts of terrorism against U.S. citizens.”
The Critics
The new fund is not without its critics, however. Touted by supporting lawmakers as a major win for victims, the legislation seemed to appear out of thin air — at least to some observers who have raised an eyebrow at the lack of hearings.
“In creating a billion-dollar fund, we’re leaving it to a very small number of people behind closed doors to have gotten this right without any consultation,” Bellinger said.
But lawyers who spent the last year and a half or so pushing for the legislation contend that the fund is fair in how it looks to dole out compensation to victims, and they note that it came together in a rare burst of bipartisan effort between both the Senate and House judiciary committees.
“There were no hearings because it moved very fast … [legislators] felt so strongly about this that they decided they were going to do it jointly and in a collaborative measure,” Newberger said.
In the quick push to roll out the new terrorism fund legislation, however, a provision was added in at the final draft stage that may leave some terrorism victims behind, critics contend.
The provision calls for fund participants to not only hold final judgments that have ridden out all possibility of appeal, but they must also hold an order showing that the foreign sovereign was served notice of the judgment.
While on the surface this provision seems to ensure that the participants are fully eligible for the fund, it may create problems for those holding judgments against Syria because the State Department is presently declining to deliver service to Damascus. This could mean that otherwise-qualified terrorism victims will be left out of the fund.
It could be fixed in a number of ways, such as the State Department starting service again, Congress passing a technical amendment, or the special master of the new fund simply waiving requirement for Syrian cases, Perles said. But it will be another hard decision that officials will have to make.
Choices
Those currently embroiled in some of the highest-profile cases on the terrorism compensation front will also need to make some tough choices regarding whether to join in on the new fund.
Under the law, those involved in the 650 Fifth Avenue case have three options when it comes to taking part in the fund. The same goes for those involved in a separate case in which lead plaintiff Deborah Peterson and other victims of the 1983 Beirut Marine Corps barracks bombing are pursuing $1.75 billion worth of funds owned by Bank Markazi in a Citibank NA account.
One option is to fully elect to join the fund, which would mean that the victim also agrees to pool his or her winnings in the cases with the rest of the fund. That would sweeten the pot for everyone, but it could leave a claimant with less than he or she would have gotten outside of the fund.
For those who join, the new fund will cap payments to only cover up to $20 million of compensatory damages for individuals and $35 million for families. And, depending on the number of claimants taking a slice of the funds, getting that full award may occur in pieces over time, though victims still have the right to pursue other civil litigation to try to get paid.
The caps were put in place in an effort to be fair. With $12 billion of outstanding judgments and only a little over $1 billion guaranteed to be entering the fund, “it’s just a matter of trying to get everybody something,” according to a House Judiciary aide, who declined to be named.
A second option is to opt out of the fund and gamble on a larger award in existing court cases, which may or may not come through.
Currently, the defendants in the 650 Fifth Avenue case are appealing to the Second Circuit a judgment that granted the forfeiture of their interests to the U.S. government.
The Peterson case is currently before the U.S. Supreme Court, with Bank of Markazi arguing that Congress overstepped its bounds when it crafted the 2012 Iran Threat Reduction and Syria Human Rights Act and included a provision that allowed the families of victims of the 1983 Beirut Marine Corps barracks bombing to collect on a $2 billion judgment.
There is a third path, however, that most will likely choose to take. Under a conditional payment option, the victims in these cases can be entitled to receive compensation from the fund if their respective cases flame out in a ruling that goes against the terrorism victims. But if the case goes their way, the special master can deny them entrance into the fund.
Salzman, for one, isn’t sure which road he will take.
“We won’t know [if we join the fund] until we know how many hands are in the cookie jar,” he said.
Natalie Rodriguez is a senior legal industry reporter. She has covered the 650 Fifth Avenue case since 2014. Follow Natalie on Twitter.
