N002645
January 21, 2002
Kenneth L. Zwick, Director
Office of Management Programs, Civil Division
U.S. Department of Justice
Main Building, Room 3140
950 Pennsylvania Avenue NW
Washington, DC 20530
Fax 301 519 5856
and
Kenneth R. Feinberg,
Special Master WTC Compensation Fund
The Feinberg Group
780 Third Avenue, Suite 2202
New York, NY 10017-7076
Fax 212 527 9611
Re: COMMENTS, from Podhurst, Orseck, Josefsberg, Eaton, Meadow, Olin & Perwin, P.A., on
the
“interim Final "VICTIM COMPENSATION FUND Regulations published in the Federal
Register, 28
CFR Part 104, December 21, 2001.
Dear Director Zwick and Special Master Feinberg:
We currently represent family members of several decedents in the World Trade Center disaster.
Our
clients include decedents in the WTC Towers, including one of the firefighters, and passengers
on two
of the four aircraft involved in the hijackings and crashes. We write to you on their behalf. We
are
gravely concerned that the regulations published as an “Interim Final Rule” to “carry out” the
legislation
which created the Victim Compensation Fund are grossly unfair to the majority of family
members and
violate the terms of the enabling legislation.
These comments are respectfully offered in the hope that they will lead to modifications of the
announced regulations which will make the regulations fair to the families, will bring the
regulations into
conformity with the Congressional mandate, and will permit us to recommend to our clients, and
others
who ask, that they universally file their claims with the Fund. We cannot do this now under
these
proposed regulations.
GENERAL COMMENTS
Congress enacted the “Air Transportation Safety and System Stabilization Act” on September 22,
2001 to help the nation and the families of individuals killed and injured in the September 11,
2001
terrorist assaults cope with the economic and emotional consequences of the disaster. Section
408(a)
of the statue limited the liability of the air carriers involved. Title IV of the statute created the
“September 11th Victim Compensation Fund of 2001" and also created a federal cause of action
for
damages arising out of the terrorist related aircraft crashes of September 11, 2001.
The stated purpose of this legislation was "to provide compensation to any individual (or
relatives of the
deceased individual) who was physically injured or killed as a result of the terrorist-related
aircraft
crashes of September 11, 2001.” A supplementary statute called the Aviation and Transportation
Security Act (the “Security Act”), dated November 19, 2001, amended the statute to permit suits
against the terrorists, but also limited the liability of New York City, the owners and operators of
the
World Trade Center, the manufacturers of the aircraft and aircraft operators from whose airports
the
doomed flights originated.
These legislative enactments drastically limited in an unprecedented manner the rights of the
families to
seek full and fair compensation through civil litigation. It is, therefore, the responsibility of the
Department of Justice, which was charged by Congress with implementing the Fund’s purposes
and
promulgating regulations to do so in a way that would insure full and fair compensation for every
victim
and victim’s family. The “interim final” regulations published on December 21, 2001 do not
accomplish
that objective, and in fact, make the recovery of fair compensation impossible for most claimants.
Indeed the interim final regulations and accompanying tables of “presumed” losses are so harsh
as to be
confiscatory, and they have been received by the families as such. There is nothing in either the
original
or the supplementary statute to suggest that Congress intended such a result. Congress promised
fair
compensation, but the proposed regulations deny it.
When the Department of Justice, in consultation with Special Master Kenneth R. Feinberg,
issued the
“interim final” regulations on December 21, 2001 it described them as “procedural” to allow the
Special
Master “to commence operation of the program....[and] to allow the Special Master to begin
distributing funds....” [28 CFR Part 104, Summary] Although described as “procedural” the
rules are
in fact substantive and are contrary to the letter and spirit of the enabling legislation. They make
it
impossible to fulfill the statutes’ purpose. These “interim final” rules and regulations must be
modified to
cure clear and serious deficiencies and to avoid legal challenges in the courts.
OBJECTIONS TO THE INTERIM FINAL REGULATIONS AND THE SUPPORTING
TABLES
1. If the December 21, 2001 “interim final” regulations and the tables of presumed losses are not
modified and are applied as the Special Master has proposed, a majority of the people entitled to
receive Fund awards will be deprived of “fair, predictable, and consistent” compensation in
violation of
the Congressional mandate that the awards shall be “to the extent recovery for such loss is
allowed
under applicable State law” [Sec 402(5)]. The proposed regulations and supporting tables thus
violate
the Congressional mandate.
Reiterating the intent of Congress, the Special Master stated that the “regulations have two
objectives:
(1) To provide fair, predictable, and consistent compensation to the victims of September 11 and
their
families...; and (2) to do so in an expedited, efficient manner without unnecessary bureaucracy
and
needless demands on the victims....” 28 CFR Part 104 Statement by the Special Master. While
this
statement of purpose is laudable, the regulations as promulgated and the accompanying tables
will not
produce the desired result. Because the regulations violate the clear letter and intent of the statue
which
created the Fund they violate the fundamental principle of law articulated by the United States
Supreme
Court that regulations enacted by an agency of government must conform to the legislation they
are
supposed to implement.
The adverse consequences of the failure of the proposed regulations to conform to this
legal
standard are compounded by the effect of published comments by the Special Master about
claimant
eligibility, his "interpretations" of the statute as to how economic loss, non-economic loss and
collateral
sources will be calculated or valued, and by the "Presumed Economic and Non-Economic Loss
Tables" which are supposed to illustrate "average and typical awards." To be clear, unless there
are
changes in the regulations and the way the Special Master has indicated they will be applied, the
proposed
regulations create "caps" on recoveries of both economic and non-economic losses. This violates
the
enabling legislation. While the proposed regulations do not speak in terms of "caps," they apply
"caps"
in fact and effect. No such caps are authorized by the legislation.
2. The published "interim final" regulations and procedures improperly limit awards for
provable economic and non-economic losses and thus violate the clear and unambiguous terms
of the
Fund Statute. Sec. 402(5) is the only place in the statute where the intended level of recovery is
set
forth by Congress, and it cannot be interpreted out of existence by the Special Master.
The basic structure of the Fund compensation system is that in death cases each award
shall
fairly reflect the economic losses [Sec. 402(5)] plus non-economic losses [Sec. 402(7)] sustained
by eligible beneficiaries reduced by certain collateral sources [Sec. 402(4)]. [See Sec.
405(b)(1)(B)]. Congress instructed the Attorney General
and Special Master that "economic loss" shall be awarded "to the extent recovery for such loss is
allowed under applicable State law." Sec. 408(b)(2), which is contained in the same title of the
Act as
Sec. 402(5), also reinforced the legislative intent of making State law, including the application
of state
law, controlling, except when specifically preempted, when it provided that the "substantive law
for
decision" in litigation arising from the September 11 tragedies should be State law.
Notwithstanding the unambiguous language of the statute, the Department of Justice
promulgated Regulation §104.42 to set forth its own "interpretation" of what the statutory
mandate of
Sec. 402(5) means [402.5 says that economic loss shall be losses "to the extent recovery is
allowed
under applicable State law."] The text of §104.42 clearly violates Sec. 402 (5) and Sec. 408
(b)(2).
If that regulation, 104.42, is allowed to stand it would leave the statute, and claimants,
with no
legislative guidance whatsoever as to what the level of recoveries should be, and would authorize
the
Special Master to do whatever he wants to do without statutory guidance! Clearly this was not
Congress' intent. Regulation 104.42 should be immediately revoked.
The statutory language Congress enacted certainly did not permit the Special Master to
eliminate objective state law economic loss standards. Indeed the statute is not ambiguous. It is
the
charge of the Special Master to apply the terms of the statute, not to change them. Neither the
Justice
Department nor the Special Master has any authority to alter the legislation by establishing
arbitrary
recovery limits when to do so is contrary to the statutory language.
3. Serious deviations from the statutory mandate appear in Subpart D of the regulations
which specify a "needs" test for the "Amount of Compensation for Eligible Claimants" and
describe the
methodology for the Special Master intends to employ in making the loss calculations. "Need" is
different from "compensation."
Contrary to the Sec. 402(5) which makes State law the foundation for "economic loss"
determinations, §104.41 and related public comments by the Special Master establishes a "needs"
test
as one of the criteria for the fixing the amount of an award. §104.41 says that the "The individual
circumstances of the claimant may include the financial needs or financial resources of the
claimant or
the victim's dependents and beneficiaries." Imposing a "needs" test as a standard for measuring
the
amount of the award to which claimants and beneficiaries are entitled perverts the clear language
of the
statute. Nowhere in the statute is there any authority for a "needs" test. "Compensation," which
is the
word used by the statute, means compensation for a loss or losses sustained. It is a
fundamentally
different concept than "need."
Interjection of a "needs" test makes the loss determination "subjective" rather than
"objective."
The legislation did not empower the Special Master to make awards based upon his view of what
claimants might "need." No jury in America is instructed to consider the "needs" of a family
when
charged to make a determination of what a wrongful death award should be. Jurors are, in fact,
directed to disregard need or the wealth of a decedent when making compensatory damages
awards
for wrongful death. State law provides "objective" loss criteria for determining economic loss as
well as
the methodology to be employed. Again, the regulations, as proposed, directly contravenes the
statute
and improperly deviates from State law.
4. Elimination of earnings figures in the 99th and 100th percentile is discriminatory and
unjust. Many of the victims of this disaster were in these categories, and they have effectively
been
disenfranchised by this discrimination. All the "data" that is necessary for inclusion of these
figures is
available.
The proposed regulations and the tables of presumed economic losses promulgated by the
Justice Department and/or the Special Master limited consideration of earnings to earnings up to
and
through the 98th percentile of earnings in the United States. Earnings in the national 99th and
100th
percentile (which includes many of the victims) where many of the victims actually were, were
not even
set forth in the tables! On the charts circulated for study by the victims' families earnings figures
stop at
$225,000. References are made only to figures up to $231,000.
We are not aware of the methodology or intricacies that gave rise to the determination of
presumed economic loss in the Special Master's tables, but we know that they do not accurately
reflect
the economic loss to those decedents with very high earnings. It could be that calculations for a
decedent in his early thirties, with proven annual income of over one million dollars simply
eliminated
from consideration all earnings over $231,000. In other words the presumed loss figures for a 32
year
old decedent with annual income of more than one million dollars, of whom there were quite a
few in
the World Trade Center, comes out the same as a 32 year old decedent with annual income of
$231,000. That is probably why the Special Master is talking about presumed loss figures of
three to
four million dollars instead of twenty million dollars. Obviously this is unfair, unjust and ignores
the
mandate of the statute. Whatever the mechanics were for establishing these numbers, they ought
to be
changed. Indeed the methodology suggests a violation of due process of law.
The Fund is supposed to be a compensation fund. Compensation means compensation
for
losses. How can compensation be properly fixed by the Special Master when he does not fully
credit
the actual lost earnings of the very people he is evaluating? Is it right that the compensation of
these
people should be determined by the earnings experience of other, lower earning groups with
lesser
potential for earnings growth?
No reason can be given for the arbitrary elimination of all earnings figures above the 98th
percentile because there is nothing in the statute to support it.
The Special Master has suggested that there is insufficient data on earnings beyond the 98
percentile. But what data is necessary for these purposes beyond gross earnings figures, taxes,
and a
determination of present value? The elimination of these figures appears to be a major reason
that the
"presumed awards" for victims in this category have no basis in fact, but are arbitrarily low.
The tables and calculations should be revised to include figures from the 99th and 100th
percentile.
5. Flaws in assumptions and calculations have skewed the presumed economic loss
figures. Figures with closer relevance should have been used.
The methodology for calculating "Loss of earnings and other benefits related to
employment"
described in §104.43(a) has serious flaws, and is skewed against the best interest of the
claimants.
discounted "average" income, and unrealistic assumptions and generalizations lie at the core of
the
"presumed" loss tables and will frustrate fair awards.
For example,
A. State law requires inclusion of fringe benefits when evaluating future losses, but there
is no clear reference in the Regulations to how fringe benefits will be valued nor is it clear that all
fringe
benefits will be considered. Furthermore, the cost of fringe benefits often is the equivalent of the
present value of a future benefit which might offset the deduction for a collateral source.
B. According to the statements accompanying "Presumed" loss tables, the projected
future
income will be reduced by income taxes that would be payable by a decedent §104.43; Presumed
Economic Loss tables, II A. Step 1. Income taxes are not deducted under the laws of many
states.
New York, for example, is one of them. Coleman v. NYCTA, 37 NY2d 137, 371 NYS2d 663
(1975); NY Pattern Jury Instructions 2:280. Thus the consideration of taxes will violate state law
for
many claimants and thus violate the congressional mandate. New Yorkers, who make up the
majority
of the claimants, are denied compensation because of the improper methodology of the proposed
regulations.
Furthermore, the regulations deduct taxes from the gross income based on today's tax
rates.
Tax rates change on a regular basis and courts and economists are reluctant t predict what tax rate
would
apply 10 or 20 years from now. No one can dispute that tax on gross income is also reduced by
deductions, exemptions, deferred income, losses and other non-taxable income. It is not clear if
this is
being taken into account when reducing the award for taxes.
C. The presumed "discount rate" to be used by the Special Master offers another example
of factors that will result in inadequate awards. The Special Master has said the discount rate to
be
used is 5.1%. This rate of interest is not an after-tax rate and prevents the award recipient from
ever
reproducing the decedent's income stream. Interest rates now are below 2%. Expert testimony
routinely establishes that a theoretical discount rate as high as 5.1% fails to take into account
economic
realities that confront victims of disaster. The interest rate also cannot be the same for people of
all
ages. Therefore, the methodology proposed to be employed to discount future income of a
decedent
will penalize many families.
D. The presumed average worklife expectancies do not account for types of careers or
personal choices. The national statistics, which may have been used as a reference, are decades
old.
E. The tables of economic losses attached to the Regulations are based on national
earnings figures, not the figures applicable to individual decedents.
F. The "presumed" value of non-economic loss stained by the family of a decedent
is unconscionably low, and contrary to the statute. It is so low as to be insulting to families who
lost
loved ones. That could not possibly have been Congress' intent.
Sec. 402(7) of the Fund statute defines "non-economic losses" expansively and thus
expressly
recognizes the magnitude of the suffering sustained by both the victim before death and of the
victim's
family on account of his or her death, including their grief. §104.44 of the "interim final"
regulations
limits recovery for those losses by assigning a "presumed" value of $250,000 plus 50,000 for a
decedent's spouse
and each dependent. Given the broad definition of non-economic loss, it was clearly Congress'
intent
to be properly responsive and not to insult the families who have suffered so grievously. The
presumed
awards for non-economic loss are a fraction of what juries award for those damages itemized in
Sec.
402(7). This injustice must be remedied.
A more appropriate minimum of $1 million dollars for this category is not only fair and
supported by law, but would encourage many families to opt for the Fund rather than litigation.
They
would know this was the floor and they would get no less than this amount.
6. "Collateral sources" are ambiguously defined in Sec. 402(4) of the statute and the
regulations do not cure the problem.
We recognize that unless the Fund statute is amended (and we hope it will be) some
collateral
sources will have to be deducted from the award. However, neither the statute nor the
regulations
provide adequate guidance as to what constitutes a collateral source for offset-of-award purposes.
The
statute does not require that collateral sources be offset against the entire award. [Sec. 405(b)(6)].
A
collateral source that provides an economic benefit should only offset economic loss. The
regulations should also be amended to provide
that regardless of the label, payments which are in lieu of deferred compensation are not
collateral
sources. Any contribution by a victim or on behalf of a victim as part of his compensation
package
should not be deemed a collateral source when it is returned to the victim's family in the event of
his
death.
Employee contributed pensions and social security are both largely deferred income for a
wage
earner deducted from the pay check, lowering his/her yearly income. But reduction from the
wage
earner's income by pension contributions reduces the earnings at the starting point for the
regulations'
matrix, resulting in a lower presumptive award. It is unclear if the regulations will adequately
address
the loss of pension benefits as a loss of income or reduce an award by declaring it a collateral
source.
Workers' Compensation is typically a monthly annuity that is generally terminated or
reduced
once any third party compensates the injured party for his/her loss. There is also usually a lien on
any
amounts recovered requiring the recipient to repay all or a portion of the workers' compensation
received prior. Here, however, §104.63 of the regulations does not allow such a lien in
specifying that
awards from the Fund do not constitute a tort award or recovery from a third party. This does
not,
however, solve the problem that future workers' compensation will be terminated or reduced and
thus
cannot be a collateral source. There are triggering life events, such as re-marriage or children
reaching
majority, that can cause future workers' compensation to be terminated. The total amount of
future
compensation is difficult, if not impossible, to ascertain because it is subject to termination,
reductions
and reimbursement, and it should not be considered a collateral source payment.
7. The Fund objective of providing "fair, predictable, and consistent compensation"
cannot
be fulfilled unless these "interim final" regulations and tables are modified.
Unless the arbitrariness in the approach to claim valuation is replace by calculations
based upon
the evidence, awards cannot be "fair." Unless awards are based upon evidence the awards will
not be
predictable. The only claimants for whom awards will be "predictable" are those who elect to
accept
the inadequate "presumed" awards as published by the Special Master, unless they are changed.
This
is grossly unfair because the "filing" of a claim waives the right to bring a civil action.
The Special Master has said that "It is our view that, absent extraordinary circumstances,
awards in excess of $3 million, tax free, will rarely be appropriate in light of individual needs and
resources."28 CFR 104, Statement Fed. Reg. December 21, 2001, p.66274 The point is
advanced
again at p.66278, "Therefore, a claimant should not assume that he or she will receive an award
greater
than the presumed award simply because the victim had income that exceeded the income for the
98th
percentile." It is, therefore, obvious, that preemptive judgements have been made that must
necessarily
produce unfair awards because of the anti-claimant bias built into the award calculation process.
In light of the Special Master's statements it is clear that claims filed on account of the
deaths of
the highest wage earners will be among the claims treated most unfairly by the Fund process. It
is
remarkable that even before evidence is submitted some claimants are informed by the Special
Master
in his published comments that the evidence is unlikely to affect the outcome. Thus, even before
claims
are filed we know that awards in a broad class of cases will violate the letter and spirit of the
unambiguous Congressional mandate. Congress did not authorized the Attorney General or the
Special Maser to penalize success.
The Special Master has expressed concern about disparate awards and structured his
approach to making award determinations with that in mind. Avoiding disparate awards as a
criterion
for fixing loss compensation appears nowhere in the statute. What fairness requires is that the
principles
by which awards are determined must be uniformly applied and not arbitrarily limited. The
application
of the regulations should not violate the Special Master's admonition that"[each] claimant should
to the
greatest extent possible, be treated fairly based on the claimant's own individual circumstances
and
relation to their claimants." 28 CFR 104, Fed. Reg. Vol. 66, p66278. To use the language in the
statute that in making an award "the individual circumstances of the claimant" may be considered
[Sec.
405(b)(ii)] to limit recoveries turns the concept of "fairness" on its head. It is no consolation to
anyone
to pay lip service to a legitimate principle, but violate it in practice.
8. Sec. 104.3(a) contravenes the Fund statute in the way it defines who may be a
"beneficiary" eligible to receive a Fund award.
By not defining non-economic loss in terms of "applicable State law" Congress was
expressing
its intention to allow recovery for such losses by a broader class of beneficiaries than State law
might
allow. For example, under New York's EPTL sec. 5-4-4(a) wrongful death damages may be
recovered
by parents only if their child was unmarried or survived by a spouse and no children. Therefore,
restricting persons entitled to recover non-economic loss violates the Fund legislation.
No one could reasonably challenge a definition of "beneficiary" which includes parents,
regardless of the marital status of their children or composition of a victims's household,
dependant
relatives living in a victim's household, or other dependant person sharing a household with a
victim.
9. A person who files an application for a Fund award, but is determined to be ineligible
should not be deemed to have waived the right to commence a civil action.
Both the Fund statute [Sec. 405(c)(3)(B) and regulations [§104.61 (a)] provide that by
filing a
claim for Fund compensation an individual waives the right to commence a civil action. But the
statute
does not require that if a claimant or beneficiary is determined to be ineligible for benefits that
the right
to commence a civil action has not been waived. This oversight should be remedied. Surely if
Fund
benefits are not available to a claimant because of a lack of eligibility the right to commence a
civil
action should not be forfeited.
10. Civil suits against the terrorists are permitted and should be discussed in the
Regulations. The original statute was amended by Congress on November 19, 2001, to permit
civil
suits against terrorists, but no clear mention of that is made in the proposed regulations, resulting
in
statements that are now incorrect or at least misleading. See, for example, Page 3 and Page 27,
both
of which state that upon submission of a claim to the Fund the claimant waives the right to file a
civil
action for damages sustained "except that this limitation does not apply to civil actions to recover
collateral source obligations." It is not completely clear what this means, but it is obvious that
this does
not inform a layperson that even upon filing a claim with the Fund a suit against the terrorists
may be
maintained.
It would be much better if the Regulations simply cited the amended language of Sec.
405(c)(3)(B)(i) of the statute:
The preceding sentence [which provides that upon the
submission of a claim to the fund waives the right to file a civil action]
does not apply to a civil action to recover collateral source obligations,
or to a civil action against any person who is a knowing participant in
any conspiracy to hijack any aircraft or commit any terrorist act.
11. Defining "physical harm" for the purpose of establishing eligibility for filing a claim to a
"physical
injury to the body that was treated within 24 hours of the injury" is absurd [104.2(c)(i)]. The
heroism of people injured and the chaos of the event must be weighed in defining physical
harm.
The 24 hour rule is totally unrealistic.
12. When will these comments and objections, and others, be heard and considered? And
when
will there be a decision, or decisions on them?
It is particularly important to note that the statement in the Summary introducing the
regulations
[Federal Register, Vol. 66, No. 246, December 21, 2001, p.66274], "In order to allow the Special
Master to begin distributing funds, the Department is issuing this rule as an "Interim Final Rule"
that will
have the force and effect of law immediately upon publication." does not excuse non-compliance
with
the requirements of the Administrative Procedure Act, 5 U.S.C. §553.
The APA requires an agency to publish a general notice of proposed rule making in order
to give interested parties an opportunity to participate in the rule making before it
becomes effective. Merely designating the Victim Compensation Fund regulations as "interim
final"
does not satisfy this statutory notice and comment obligation. See, Air Transport Association of
Canada v. Feral Aviation Administration, 254 F.3d 271 (D.C. Cir. 2001). Sec. 407 of the Fund
statute obligates the Department of Justice to "promulgate" regulations within 90 days of the date
of its enactment (September 22, 2001), but it does not authorize the Department to dispense with
the APA requirements. An APA violation here
would be especially troublesome because of our charge that the most important provisions of the
regulations as published contravene the enabling legislation.
This rule has been declared "final" and effective even before these objections have been
filed,
let alone read and considered. We would appreciate some information on when they will be
considered and resolved.
Conclusion
We have offered these comments mindful of the extraordinary responsibility placed upon
the
Department of Justice and Special Master by Congress. We hope that our views and
observations will
be received in the cooperative spirit with which they are offered and that they will contribute to
the Fund's success.
Respectfully yours,
Comment by:
Miami, FL