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LITIGATING THE HOLOCAUST[1]

Michael J. Bazyler

 The subject of the Holocaust is very close to my heart. My formative life experiences come from growing up in postwar Poland, in the city of Lodz, the site of the infamous Lodz Ghet­to. I still remember, as a young boy, walking during the 1960s past streets where remnants of the barbed wire from the Ghet­to remained and from where almost all inhabitants were shipped to their death in Auschwitz.

Most of my parents' friends were Holocaust survivors. As a child, it was not unusual to see numbers tattooed on the arms of the adults visiting our home. My parents always feared another war in Eu­rope, and this fear led us to emigrate from Poland to the safety of America. I joined The “1939” Club and became a member of the Board, and in 1999, I was elected as a vice president.         

  Historians estimate that the Nazis stole between $230 billion and $320 billion in as­sets, in today's dollars, from the Jewish pop­ulation in Europe. For over one-half century, most of these losses remained uncompensated. While since the 1950s postwar West Germany has paid repara­tions amounting to approximately $70 billion to some Jewish victims of Nazi persecution, the amounts to each individual were small and came nowhere close to compensating for the suffering endured by the victims and the actu­al mone­tary losses suffered by European Jew­ry.

The financial books of the Holocaust are only being settled now. Surprisingly, the accounting is not being done in Europe, where the Holocaust took place, but in the United States. Why here?

The answer lies with the American legal sys­tem. It is a trib­ute to the United States sys­tem of justice that our courts can handle claims which originated over fifty years ago in another part of the world. Long-established principles of judicial juris­diction, choice-of-law, equity, our independent judiciary, the American belief in jury trials, our system of evaluating damag­es, the ability to file class action lawsuits, and American-style discovery have made the United States the most attrac­tive and, in most cases, the only, forum in the world where Holo­caust-era claims can be heard today.

Diplomacy, individual pleas for justice by Holocaust survivors and various Jewish organi­zations for the last fifty years, and even suits in foreign courts, have not worked. It is only now, with the intervention of American courts, that elderly Holocaust survivors (there are approximately 100,000 Holocaust survivors still alive in the United States and 360,000 in Israel) see their last great hope to obtain compensation being fulfilled.

The beginning date of this phenomenon of Holocaust survi­vors and their heirs suddenly bringing successful suits in the United States' courts to recover compensation for losses suf­fered during World War II can be traced to October 1996, with the filing of three federal class action lawsuits in New York, not against German companies, but against the three largest Swiss banks for failure to return money deposited with the banks on the eve of, or during, World War II.

Since then, the floodgates of litigation have opened, with over fifty more civil lawsuits filed in both federal and state courts against various foreign and American corporate and individual defendants arising from Holocaust-era events. The number is still rising. Each month brings news of the filing of another Ho­locaust-era lawsuit in the United States. The field is so dynam­ic that some law firms have been labeled, depending upon their size, as now having either the entire firm or an entire depart­ment engaged in a “war crimes practice.” In contrast to the slew of lawsuits filed in the last two-and-one-half years, between 1945 and October 1996, less than a dozen lawsuits were filed involving Holocaust claims. Most were dis­missed.

The filing of such lawsuits only now, over one-half-century after the events took place, is astounding. As far as I am aware, in the history of American lit­igation, a class of cas­es has never appeared in which so much time had passed between the wrongful act and the filing of a lawsuit.

Whenever I give a talk on this subject, one question always arises: Why now? There is no single reason. Rather, the answer in­volves a combination of factors that have made these law­suits possible.

As an international human rights lawyer and a law professor, I can proudly state that an important factor in making a Holo­caust lawsuit brought in the United States viable today was the victory achieved by the human rights bar in the last two de­cades in convincing American courts that human rights victims injured abroad can sue in the United States. That step began with Filartiga v. Pena-Irala, the land­mark 1980 Second Cir­cuit Court of Appeals opinion which held that a victim of state-sanctioned tor­ture can bring suit against the torturer in the United States even though the tor­ture took place on foreign soil.

Political and social changes also have had a great deal to do with making the timing right for filing Holocaust-era suits. In a recent interview, Abraham Foxman, head of the Anti-Defama­tion League and himself a Holocaust sur­vivor, explained:

We have to remember why . . . we're dealing with it now . . . . [T]here are some practical reasons, and that is, after 50 years, the British opened some of their books. The Soviet Union's dis­array has made [more] documents avail­able. . . .

But there's another reason that we didn't deal with this issue for 50 years—because the trauma of the human trage­dy was so tremendous, so enormous, so gargantuan, that nobody wanted to talk about material loss for fear that it will lessen the human tragedy. Be­cause when you begin talking about prop­erty, then what about life? And so for at least two genera­tions—yeah, Israel decided to take repara­tions, it needed it—but individually we didn't deal with it. Not that we didn't know that there were bank accounts, that there was in­surance, that there was property. My mother's family had a factory in Warsaw. My father had some stores in Baranowicz. But nobody ever raised it. No­body ever said, look what we lost. I don't remem­ber conver­sations of mate­rial loss. Now I realize how significant the loss was, but nobody talked about it. Because what they talked about was that they lost 16 members of their fami­ly.

Cases filed beginning in 1996, with the emer­gence of Holo­caust-era litigation, can be di­vided into five types: (1) claims against the Swiss; (2) claims against the European insur­ance companies; (3) claims arising from the use of slave labor; (4) claims against German and Austrian banks for their dealings with the Nazis; and (5) claims stemming from Nazi-sto­len art.

Claims Against the Swiss

The first set of cases are claims filed in the Eastern District of New York against the three major Swiss banks on behalf of Holocaust survivors and their heirs who deposited money in Switzerland for safekeeping.       As the tragedy of World War II began unfold­ing, Jews and other persecuted minorities in Europe, under the inducement of Swiss bank secrecy laws, began to deposit money in neu­tral Switzerland. After the war, when the sur­vivors or heirs asked for their money back, they were refused.

The claims filed had a simple legal theory: unjust enrich­ment. The Swiss banks held on to the money for over fifty years and should now give it back. Three lawsuits were filed and consolidated in April 1997, under the title In re Holocaust Victims' Assets Litigation, before Judge Edward Korman, the King Solomon of this litigation. The lawsuits also sought for the Swiss banks to disgorge profits that they made from their fi­nancial dealings with the Nazis. Specifically, the claims sought disgorgement of profits from assets looted by the Nazis, including gold and proceeds from slave labor which the Nazis “fenced” through Swiss banks to raise Swiss francs to support the German war effort.

The litigation against the Swiss banks has been settled for $1.25 billion, the largest settlement of a human rights case in United States history. At first, the banks refused to make any settlement offers. Instead, they filed extensive motions to dis­miss, totaling over 500 pages and covering every possible ground for dismissal of the suits.

Having received the lengthy briefs from both sides, Judge Korman did something brilliant. He did nothing. Rather than ruling on the mo­tions, he sat on them for close to one year and waited for the parties to reach a settle­ment.  State and local governments then put on the pressure by announcing that if the banks did not negotiate in good faith, they would withdraw their investments from the Swiss banks and do business with other financial institutions.  Interestingly, state and local officials made the threat of sanctions against the advice of our State Department. The State Department claimed that such actions amounted to inter­ference with American foreign policy.

The gambit worked. The Swiss first announced their “take-or-leave-it” offer of $600 mil­lion, and then one month later, in mid-Au­gust 1998, with the threat of sanctions loom­ing only two weeks away, they doubled their offer to $1.25 billion. The cru­cial event was a dinner meeting conducted by Judge Korman at a Brooklyn restaurant where he persuaded the two sides to come together and settle for this amount.

So far, none of the money has been paid to survivors. The Swiss banks made the first installment payment of $250 million in Novem­ber 1998, but the money is sitting in a trust account awaiting resolution of how it should be distributed.

Claims Against the European Insurance Companies

The second set of cases involves claims against European insurance companies. The in­surers collected extensive premiums from Jews in the years preceding the Holocaust, but they never paid off on the policies. In the time between the two world wars, life insurance poli­cies and annuities were popular investments. They have, in fact, been called the “poor man's Swiss bank account.” It has been estimated that in the prewar years, Jewish families bought policies worth an es­timated $2 billion to $2.5 billion in today's dollars, and that the insurance companies made a fortune on these policies.

The European insurers have made a number of arguments in support of their denial of legal liability. First, like the Swiss banks, the companies have argued that U.S. courts lack subject matter jurisdiction over these claims. Even if jurisdiction exists because the compa­nies do extensive business in the United States, the companies argue that any dispute about the policies should be settled in the courts of the Eastern European countries where the policies were written.

hird, the insurance firms have argued that because the postwar Communist governments of Eastern Europe national­ized their branch of­fices where the policies were issued, their obligations on the policies have ended. Final­ly, the companies claim that the policies, denominated in then hyper-inflated currencies, presently have little or no value.

In March 1997, a class action lawsuit was filed in the South­ern District of New York against sixteen European insurance companies. The lawsuit sought $1 billion from each compa­ny for refusing to pay out on their poli­cies. Judge Michael Mukasey in Manhattan borrowed Judge Korman's approach from the Swiss bank cases. In response to the insurance companies' motions to dismiss, he has not ruled on the motions, hoping that the matter will settle instead.

Meanwhile, a number of individual heirs of policy holders have filed their own individual actions. One of those, Stern v. Assicurazioni Generali S.p.A., was filed in California be­fore a state judge in Los Angeles, who re­cently ruled that she has subject matter ju­risdiction over the suit. In March 1999, she also fined Generali, the defendant insurance company, more than $14,000 for hiding from the court that the com­pany had been a plaintiff in California courts in over two dozen law­suits.

Because the business of insurance is regulat­ed individually by each state, the various state insurance commissioners have entered the picture. Under the threat of being expelled from the United States insurance market, five of the European insur­ance companies, who are parents to some of the most well-known insur­ance companies in the United States, have agreed with the National Association of Insur­ance Commissioners to set up an International Commission on Holocaust Era Insur­ance Claims, headed by former U.S. Secretary of State Law­rence Eagleburger. The companies are dis­cussing the estab­lishment of a fund, ranging from $90 million to $2 billion, to pay on the disputed policies through the Commission. The insurance com­panies hope that the Inter­na­tional Commission process will supersede the class action litigation.

Slave Labor Claims

The third set of cases involves suits against German compa­nies that utilized slave laborers during World War II. Between eight to ten mil­lion persons were forced to work as slave la­bor­ers in factories in Germany and throughout occupied Eu­rope during World War II. (The term slave is a misnomer, however. As explained by Benja­min Ferencz, one of the American pros­ecutors at Nuremberg, “The Jewish concentration camp work­ers were less than slaves. Slavemasters care for their human property and try to preserve it; it was the Nazi plan and intention that the Jews would be used up and then burned.”) Historians estimate that approxi­mately 700,000 of these forced slave laborers are still alive, and some estimates place the number of slave labor survivors as high as 1.6 million.

While postwar West Germany paid reparations to some Jew­ish victims of Nazi persecution (since the 1950s, Germany has paid approxi­mately $70 billion in reparations), slave laborers were specifi­cal­ly excluded from receiving payment and no German industrialist was brought to trial at Nuremberg for use of slave labor. Former German slave labor­ers found themselves in a catch-22 situation. The German gov­ernment claimed that it was not obligated to make pay­ments to them because the laborers worked dur­ing the war for private German industry. Ger­man industry, on the other hand, argued that any payments should come from government cof­fers be­cause the postwar German regime was the legal successor to the Third Reich. The German firms maintained that the Nazi regime forced them to use slave la­borers to support the Ger­man wartime economy during World War II.

In October 1998, the new center-left Chancel­lor of Germany, Gerhard Schroeder, reversed his predecessor, Helmut Kohl, and announced the creation of a joint German government-in­dustry fund to compensate former slave labor­ers and others not cov­ered under existing Ger­man reparation law. Schroeder appointed his key aide, Bodo Hombach, to head the joint government-industry group. Among those partici­pating in the group are heads of Allianz Insurance Company, the Dresdner and Deut­sche banks, the auto giants BMW and Volks­wagen, and the Siemens, Krupp, Degussa, and BASF indus­trial concerns.

By that time, however, plaintiffs' lawyers in the Swiss bank litigation, buoyed by the suc­cess of their $1.25 billion settle­ment, al­ready began filing suits in American courts against various German and even American com­panies. The lawsuits sought damages for the companies' use of slave labor during World War II.

Anyone who thought that the Swiss bank settle­ment marked the end of the campaign by Jew­ish organizations for res­titution has had a rude awaken­ing. Far from dying down, the num­ber of European banks, insur­ance companies and industrial com­panies that are under pressure to make similar set­tle­ments is snowball­ing. Even announcements by some German companies in late 1998 that they would set up commis­sions to investigate their role during the Nazi era and voluntarily make payments to their former slave laborers who were still alive did not dis­suade “slave labor” plaintiffs and their lawyers from continuing with their lawsuits.

Hoping to stop the litigation in its tracks, German govern­ment and industry announced in February 1999, the establishment of a $1.7 billion fund to compensate slave laborers. German Chancellor Gerhard Schroeder made it obvious that the fund was being established as a means to shortcut law­suits filed against German industry in the United States. Such an admission is as­tound­ing because it explicitly demonstrates the strength of the American system of jus­tice. Fear of American litigation led the Ger­mans to capitulate and agree to pay the slave labor­ers.

The slave labor fund is being financed en­tirely by German industry, with twelve promi­nent German companies participat­ing (including three German au­tomotive gi­ants, DaimlerChrysler, Volks­wagen and BMW). The German government made no contribution to the fund but is expected to establish a state “German Feder­al” fund in the future. But to the distress of the German government and industry, the announcement of the fund did nothing to stop the lawsuits. In fact, on the very day the fund was announced in Germany, a new federal class action lawsuit was filed in the United States against Bayer, one of the twelve fund companies, alleging that it had participated in cruel medical experiments con­ducted by the infamous Dr. Josef Mengele at Auschwitz.

The Germans, however, still want to avoid repeating the mistakes of the Swiss. Rather than dragging through prolonged litigation and the attendant bad publicity and threat of sanctions experienced in the Swiss bank liti­gation, the Germans made the offer to settle soon after the suits against them were filed. The expectation is that the ongoing suits will not reach the trial stage and will be resolved in the near future. It is also expected that the global “rough justice” payout that the Ger­mans will have to make will be sufficiently greater than the $1.7 billion now on the ta­ble.

Slave Labor Action Against Ford Motor Com­pany

Surprisingly, the first slave labor action filed was not against a German company, but against the American automotive giant Ford Motor Company. In a federal class action in New­ark, New Jersey, filed in March 1998, Ford Motor Company and its Ger­man subsidiary Ford Werke were accused of “knowingly ac­cepting substantial economic benefits” from the use of forced labor in Nazi Germany during World War II and to have “knowingly earned enormous profits from the aggressive use of forced labor under inhuman conditions.

According to the complaint, Ford Werke, doing business in Germany since 1925 and headquar­tered in Cologne, was an aggressive bidder for forced laborers dragooned into Germany by the Nazi war machine from occupied Europe. The complaint indicated that “[b]y 1942, 25% of the work-force utilized by Ford Werke A.G. were unpaid, forced laborers. By 1943, the percent­age of unpaid, forced laborers at Ford Werke A.G. had grown to 50%, where it remained for the re­mainder of the war years.”  The suit claims that Ford Werke, unlike sub­sidiaries of other American-owned companies, was never nationalized or confiscat­ed by the Nazis, and that the parent, Ford, maintained a con­trolling 52% interest in the German subsid­iary during the war years.

In a public response to the lawsuit, Ford countered that “the plant was under Nazi con­trol during the war and that, al­though ‘divi­dends were accumulated from German operations’ on the parent company's behalf, Ford never received them. A company spokesperson added, “It must be said that by anyone's measure this was one of the darkest periods of history mankind has known.”

Ford filed a motion to dismiss. The motion was not heard until March 8, 1999, almost ex­actly one year after the filing of the law­suit. At the hearing and in its mo­tion papers, Ford argued, like the German com­panies, that the German govern­ment, rather than the pri­vate automaker, should pay compen­sation to its former slave labor­ers. Ford also contended that the question of compensa­tion, having arisen from World War II, is nonjusti­ciable and should be dismissed. Finally, Ford argued that the statute of limita­tions barred the plaintiff (a citizen and resident of Bel­gium) Elsa Iwanowa’s action.

The district court took the extraordinary step of holding a full-day hearing on the mo­tion and requested further documen­tation and briefing from the parties. No decision on the mo­tion to dismiss has been issued as of May 1999.

Since the filing of the lawsuit against Ford, over 30 more lawsuits have been filed by former slave laborers against individual German, Austrian, and American companies for their use of slave labor in Nazi-occupied Europe.  In July, 1999, the State of California enacted a new law, allowing such suits to be filed in California state courts, and extending the time limit for filing such suits.  This should bring a slew of new lawsuits being filed in our state.

Consequences of Filing the Slave Labor Actions

The filing of the suits against German compa­nies has led to enormous positive effects. First, until the lawsuits in the Unit­ed States were filed, German industry denied for over a half-century the slave laborers' claims. Only after the German in­dustrialists began to feel the pressure of American litigation did they agree to pay their still-uncompensated slave laborers.  Second, the filing of the lawsuits led di­rectly to exposing the widespread complicity of German, Austrian, and even American industry with the Nazi war machine. Facts about partic­ipation of these industrialists with the Nazis, solely for the sake of profit, either came to light for the first time, or were resurrect­ed from the long-forgotten Nuremberg trials of a half-century ago, as a result of the accusa­tions made against these corporate defendants in the lawsuits filed in the United States.

The German corporations' argument that they had no choice but to participate in the economic crimes should be rejected on the same basis as the argument by the ordinary foot soldier that he was merely “following orders” and even more so, be­cause the sol­dier, in contrast to the industrialist, does not profit from his acts. The slave labor law­suits, dealing with the nefari­ous past conduct of the world's corporate giants, sets an im­portant precedent for the corporate behavior of multi­nationals in the future.

Claims Against German and Austrian Banks

The fourth set of claims involve German and Austrian banks. During the Second World War, these banks maintained close business relationships with the Nazi war ma­chine and appear to have profited handsomely from such deal­ings.

In February 1999, Deutsche Bank, Germany's largest bank, issued an explosive announcement that an independent histori­cal commission re­viewing the bank's wartime activities discov­ered that Deutsche Bank financed the building of Auschwitz. (Deutsche Bank disclosed that offi­cials discovered docu­ments showing a branch of the bank in Nazi-occupied Katowice, Po­land, had pro­vided loans to construction companies with contracts for facilities at Auschwitz, as well as an adjacent IG Farben chemicals plant.) Earlier, in August 1998, the historical commis­sion confirmed that Deutsche Bank profited from gold plun­dered from Holo­caust victims. A historical re­port of the Dresdner Bank, the second-largest bank in Ger­ma­ny, found that in Nazi-occupied lands the saying went, “Right after the first German tank co­mes Dr. Rasche from the Dresdner Bank.”

The first class action filed against the German banks for their wartime activities was filed in June 1998 in federal court in Manhat­tan. Plaintiffs, three elderly Holocaust survivors and all United States citizens, sued on behalf of themselves and on behalf of 10,000 Holocaust survivors and victims' rela­tives. Named as defendants were Deutsche Bank and Dresdner Bank AG, both headquar­tered in Frankfurt, Ger­ma­ny. The lawsuit charged the two banks with profiting from the looting of gold and other personal property from Jews. The complaint sought a total of $18 billion in compensatory damag­es and un­specified exemplary damages.

In October 1998, the lawsuit was amended to add as defen­dants two Austrian banks, Creditanstalt and its parent bank, Bank Aus­tria. Creditanstalt was accused both of profiting from the proceeds of slave labor during the war and of partici­pating and prof­iting from the looting or “Aryanization” of Jew­ish-owned assets in Austria. The Aus­tri­an banks claimed that they should not be held legally responsible for participat­ing in the theft of gold and other assets of Jewish vic­tims be­cause Creditanstalt was taken over by Deutsche Bank in 1938 as part of Germany's annexation of Austria.

Later that same month, the German banks were hit by a second class action lawsuit filed in federal court in Brooklyn, New York, by a an­other group of attorneys representing a dif­ferent set of Holocaust survivors and heirs. The law­suit named Germany's Deut­sche Bank, Dresdner Bank, and Commerzbank as defen­dants. The lawsuit accuses the banks of refus­ing to return assets of Jewish survivors and of fi­nancing and profiting from Nazi slave labor. Eventually, a total of eight cases were filed against the German and Austrian banks.

The fifth and, to date, final set of claims stems from art looted by the Nazis. The Nazis stole an estimated 220,000 piec­es of art from both museums and private collections through­out Europe. The value of this plundered art exceeded the total value of all artworks in the United States in 1945. The worth of the art stolen by the Nazis is astounding: an estimat­ed $2.5 billion in 1945 prices, or $20.5 billion today.

Museums suspected of currently possessing Nazi-stolen art include the Louvre in Paris and the Hermitage in St. Peters­burg, Rus­sia. Museums in the United States also have not been immune. Since 1997, a number of prom­inent American museums have been embar­rassed to dis­cover that their collec­tions in­clude Nazi-sto­len art which made its way to the United States after the war. To deal with the problem of Nazi-sto­len art, the U.S. Department of State and the U.S. Holocaust Museum hosted a conference in Novem­ber 1998, in Washing­ton, D.C. Forty-four na­tions sent repre­sentatives to the conference.

According to experts, the disposition of art looted during World War II is even more complex than the issue of Nazi-stolen gold and other Holocaust-era claims. First, so much art is at stake that a large-scale return of such World War II-looted art could disrupt the art market, especially for French Impres­sionist paintings, which were a favorite tar­get of the Nazis. Second, unlike in the claims of Nazi-stolen gold, dor­mant Swiss ac­counts, or use of slave labor, where the per­petra­tors knew, or at least should have been substantially aware that they were engag­ing in wrongful activities, many (though not all) present owners of Nazi-looted art bought the artworks in good faith and without any knowl­edge or suspicion of their controversial heri­tage. Finally, these good faith pur­chas­ers are often pitted against claimants who may not even be the original owners from whom the artworks were stolen, but sur­viving and some­times distant relatives of the victims. To date, unlike in the other Ho­locaust-era claims litigation, less than a handful of law­suits have been filed in the United States involv­ing World War II-looted art. Because each lawsuit in­volves a specific artwork, all have been individual lawsuits rather than class action litigation.

In August 1998, the first case to reach trial for Nazi-stolen art, Goodman v. Searle, settled on the eve of trial. The case involved a Nazi-stolen Degas painting which made its way to the United States. The plaintiffs, grandchildren of the Jewish owner whose art was taken and who was murdered by the Nazis, and the present owner of the paint­ing, a Chicago phar­maceutical magnate who claimed to have bought the painting in good faith, agreed to divide the ownership of the painting and to donate it to the Chicago Art Museum, with the grandchil­dren receiving one-half value of the painting from the museum.

Another case, this one involving a Nazi-sto­len Matisse, filed against the Seattle Art Museum also recently settled.  The Seattle Museum agreed to give up the painting to the Holocaust victims’ rightful heirs.  A third case filed against the New York Museum of Modern Art (MOMA) by New York District Attorney Robert Morgenthau, has prevented the departure from New York of two Egon Schiele paintings loaned by an Austrian museum for a MOMA exhibition. The Schiele paintings are believed to have been stolen during World War II. The highest court in New York is now considering whether the paintings should be returned to Austria.

Conclusion

An editorial in the Israeli newspaper Ha’aretz succinctly explained the impact of various revelations being made today about the financial misdeeds stemming from the Holocaust:

The Holocaust proved that the murder of the Jews and the annihilation of whole communities was not only an outlet for monstrous anti-Semitism, it was also good business.  But it is precisely the willingness of the world’s nations today, some 55 years after the end of World War II, to make the material calculations and search for stolen property and return it, that raises questions which in the past were possible to ignore.

Undoubtedly, additional Holocaust lawsuits will be filed in the future.  As long as one Holocaust survivor is alive and an individual or corporation doing business in the United States is discovered to have been involved in misdeeds during World War II, litigation of the Holocaust will continue in our courts.

The floodgates of Holocaust litigation will remain open into the 21^st Century.

Michael Bazyler is a professor of international law at Whittier Law School.