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The proposed settlement of cases brought by Holocaust survivors against German banks that seized assets during the infamous Nazi Aryanization program was rejected yesterday by U.S. District Judge Shirley Wohl Kram of the U.S. District Court for the Southern District of New York. Citing “unacceptable prejudice” to absent class members and concern that a German-formed foundation for compensation of victims has yet to be funded, Kram refused to grant plaintiffs’ motion to dismiss the cases against the banks. The judge’s decision in In re Austrian and German Bank Holocaust Litigation, 98 Civ. 3938, could, at worst, send multiple parties — including the German and American governments, lawyers for plaintiffs in 10 consolidated actions against the banks, and lawyers for victims in dozens of other Holocaust-related cases — back to the negotiating table. But at a minimum, the decision is certain to delay the beginning of payments to Holocaust victims through the $4.5 billion foundation, called “Remembrance, Responsibility and Future,” which is to be funded by contributions from the German government as well as German banks and corporations. “The issue that the parties to the lawsuit are going to wrestle with is whether this becomes an impediment to the foundation going forward,” said attorney Charles Stillman, who was appointed as a special master by Kram to review the fairness of the proposed settlement. “This is, potentially, a monumental event in what is a very complex situation.” Had Kram granted the motion to dismiss, it was expected that the funding for “Remembrance, Responsibility and Future” would have commenced immediately, and payments to victims could begin. But plaintiffs’ lawyer Lawrence Kill of Anderson Kill & Olick said he doubted that the ruling would prompt the unraveling of the international compact that led to the creation of the foundation. “We are disappointed because this will delay distribution, but we are committed to try and satisfy the judge,” he said. “I’m not sure it requires further negotiation so much as clarification about the mechanism established here. There was never any intent to have these cases dismissed absent full funding.” In addition to compensating bank victims, the foundation will also compensate plaintiffs who have already negotiated settlements in more than 50 consolidated class actions on Holocaust-related property claims, including slave labor claims against German industry and claims against German insurance companies. The creation of the foundation was announced last summer by plaintiffs, defendant banks, German industry and the governments of Germany, the United States, and other nations with significant populations of Holocaust survivors, including Israel. Intense negotiations between the parties led to a compact embodied in several documents, including an executive agreement between the United States and the German government that provides for the formation of the foundation. On Aug. 12, 2000, the German Bundestag passed enabling legislation for the foundation. EXCLUSIVE FORUM The terms of the compact, Judge Kram said, recognize the foundation “as the exclusive forum for the resolution of all labor and property claims against German entities arising during World War II.” With the 10 consolidated bank cases yet to be certified as a class action, Kram said she was troubled that absent class members would be effectively barred from pursuing claims outside the foundation. One reason, she said, is that the United States committed itself in the compact to provide any court where such a claim is filed with a “Statement of Interest” saying it is in the foreign policy interest of the United States for the foundation to be the exclusive remedy for all Nazi-era claims against German companies. The submission of such a statement of interest, she said, would “undoubtedly have a significant impact on the resolution of any new cases brought by absent class members,” and, in all likelihood, lead to a dismissal of those cases. Stillman, who gave a favorable report on the proposed settlement at a hearing before Kram in January, nonetheless found that the statement of interest “creates a detriment to absent class members.” And Kram’s concern about the statement of interest became more acute when she considered the status of the foundation’s funding. She said it was “clear that the German companies will not fund the foundation until all of the cases are dismissed.” “In sum, the named plaintiffs ask the court to voluntarily dismiss their claims, and thus subject all absent class members to the detrimental statement of interest and the other terms of the compact, even though the absent class members’ only source of compensation for their claims has yet to be fully funded,” she said. “Many of the absent plaintiffs in this case have waited decades to receive compensation for their property claims, and it would be unjust to divert their claims to a forum whose funding remains in question.” In response, Kill, lawyer for the plaintiffs, said that “the judge indicated a concern that the foundation has not been funded in full, but that’s a problem that can easily be addressed by the German side by funding it.” ASSIGNED CLAIMS Judge Wohl had another reason for refusing to dismiss the complaints: the status of the so-called assigned claims. A suit was filed in 1998 by a class of Holocaust victims against two Austrian banks, Bank Austria AG and Creditanstalt AG, for stealing money from their accounts. The case settled in 1999 for $40 million, with the two banks agreeing to assign victims any rights to claims that the banks themselves could make against banks in Germany for the seizure of assets. However, that same class filed a new lawsuit in the Southern District in January, alleging that three German banks conspired with the Nazis to confiscate hundreds of millions of dollars from the bank accounts of victims kept in Austrian accounts. Kram said Wednesday, “Whereas the Foundation is intended to resolve all of the other property claims in the complaint, however, the compact does not provide for the resolution of the assigned claims,” which she characterized as “an integral part of the settlement that was approved by the court.” “It would be inequitable and prejudicial to the sub-class to permit their counsel to promote the assigned claims as part of a reasonable settlement, only to have the same counsel subsequently impede the prosecution of these claims,” she said. In her ruling, Kram said that plaintiffs can renew their motion to dismiss “in the event full funding of the Foundation is accomplished, and the prejudice to the assigned claim sub-class is eliminated.”

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