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2nd Circuit Approves Holocaust Settlement Allocation Formula

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New York Law Journal 14 September 2005
Mark Hamblett

An Eastern District of New York judge's allocation of settlement funds to the most needy, elderly victims in the Holocaust Victims Assets litigation has been upheld by a federal appeals court.

In a decision issued Friday written by Judge Jose Cabranes, the 2nd U.S. Circuit Court of Appeals upheld the formula used by Judge Edward Korman that placed special emphasis on compensating Holocaust victims who live in the former Soviet Union.

The principal issues in the appeals were settled by the circuit in In Re Holocaust Victim Assets Litigation cases 04-1898-cv and 04-1899-cv. The appeals challenged Korman's geography-based allocation of a $1.25 billion settlement with Swiss banks and other organizations designed to aid victims of the Holocaust.

The proceeds of the settlement are to be divided among five classes -- the Deposited Assets Class (those whose assets were stolen from Swiss banks); the Looted Assets Class (those whose possessions were stolen by the Nazis and then disposed of through Swiss banks), two classes of those forced into slave labor by the Nazis, and a fifth Refugee Class.

Special Master Judah Gribetz, of counsel at Bingham McCutchen, concluded that the Settlement Agreement gave priority to members of the Deposited Assets Class -- which should receive roughly $800 million based on evidence that as many as 54,000 Swiss bank accounts are "probably" or "possibly" related to Holocaust victims.

The remainder, he suggested, should be allocated to the other classes, including the Looted Assets Class. Gribetz recommended that, at least during the first stages, distributions should be focused on surviving Holocaust victims among the Looted Class members "who are in greatest financial need."

Of the $90 million to go to programs for the neediest survivors, Gribetz proposed earmarking 75 percent for destitute Jewish victims of Nazi persecution in the former Soviet Union.

While the total amount of funds was later increased for the Looted Assets Class, the proportions of the allocation remained the same when Korman adopted Gribetz's supplemental recommendations in 2002 and 2003.

In 2004, Korman turned aside an objection to the allocation formula by The Holocaust Survivors Foundation-U.S.A. Inc. and others who argued that survivors in the United States had received a disproportionately small allocation.

Korman endorsed the formula partly because of the wildly disproportionate distribution of restitution funds to survivors since the end of World War II. But he also favored the formula given the harsh conditions survivors endured both during Communism and after its collapse.

Korman noted that "the financial situation of individual survivors in the Former Soviet Union ... is woeful in comparison to that of survivors in the United States."

Judges Thomas Meskill and Jon Newman joined in the appeal.

JUDGE WITHIN HIS DISCRETION

Cabranes said appellants were not challenging the District Court's discretion to distribute settlement proceeds to the neediest members, only "whether the District Court exceeded the bounds of that general principle in this case by allocating funds partly on the basis of geographic disparities in the provision of basic needs."

The conclusion, Cabranes said, was that Korman was "well within his discretion."

"We recognize that, in a traditional class action brought to remedy an injury that had occurred shortly before the initiation of suit, the amounts allocated among claimants would normally vary primarily by the effect of the injury upon different claimants, rather than by the current financial needs of the claimants," Cabranes said. "But in the circumstances presented by this case, we think the equitable principles of the cy pres doctrine permit the geographic variation that the District Court adopted."

The circuit gave considerable weight to Korman's focus on prior restitution.

"As that Court pointed out, survivors residing in the Former Soviet Union had been cut off by the prior Soviet regime from the ten prior major efforts at Holocaust reparations, and of the $53 billion that has been provided to Holocaust victims through these prior efforts, $14.8 billion or 28 percent has gone to survivors in the United States and only $444 million or 0.8 percent has gone to survivors in the Former Soviet Union," Cabranes said.

In the end, Korman's decision to allocate 75 percent of Looted Assets Class funds to needy Jewish survivors in the former Soviet Union "was rendered after the District Court carefully weighed all relevant considerations and made numerous factual findings," he said.

Korman "acted well within his discretion, and we find no support in the record of this case for appellants' suggestion that the Court acted in a 'totally subjective' manner," he said.

Despite a series of challenges to his rulings in this and other appeals, Cabranes said, Korman has approached every step of the litigation with "thoughtful analysis and scrupulous fairness."

Edward Labaton of Goodkind Labaton Rudoff & Sucharow was lead attorney for appellants in cases 04-1898-cv and 04-1899-cv. Burt Neuborne was the lead settlement counsel.

The circuit also upheld Korman's refusal to allocate funds to a trust that would have provided grants to "disability oriented, non-profit, non-governmental organizations," and his rejection of a second proposal to make allocations in support of "scholarly, educational and outreach programs" related to the Nazi persecution of homosexuals.

The circuit's accompanying decisions upholding Korman's discretion of those issues came in cases 04-2466-cv and 04-2511-cv, respectively.

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