dojN002447.xml

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2002-01-22

January 22, 2002


Kenneth L. Zwick
Director
Office of Management Programs
Civil Division
U.S. Department of Justice
950 Pennsylvania Avenue
Washington, D.C. 20530

Dear Mr. Zwick:

I am writing to provide Sandler O'Neill & Partners, L.P. ("SOP") response to the Interim
Final Regulations adopted to implement the September 11 Victims Compensation fund.
Our main office was located on the 104th floor of Two World Trade Center in New York.
SOP is a full service investment bank and broker dealer that prior to September 11, 2001,
had 148 employees in New York and an additional 23 employees in four smaller offices
throughout the country.

SOP lost sixty-six employees and four guests in the terrorist attack. Before the airplane
crashed into Two World Trade Center, approximately seventeen employees on the 104th
floor who had been in the office had left the building . Another twenty-five employees
witnessed the events unfold from the street as they arrived for work. No SOP employees
on the 104th floor at the time of the second crash survived. At this time, only fourteen of
the SOP victims have been found and positively identified.

Although there are numerous portions of the Interim Final Regulations that could be the
subject of comment, we would like to confine our comments to three very critical areas:
the inherent limitations and caps on awards built into the regulations; the negative impact
of an expansive reach in determining collateral source reductions; and the use of
artificially low guidelines for the determination of pain and suffering.


Sandler O'Neill

Unfair Imposition of Caps and Limitations

Within days after the September 11, 2001 attacks on the World Trade Center and
Pentagon and the related crash in Shanksville, Pennsylvania, Congress passed, and the
President signed into law, the Air Transportation Safety and System Stabilization Act. As
this name suggests, a key purpose of this legislation was to provide the United States
airline industry financial grants and guaranteed loans, as financial protection against the
negative impact of the hijackings and terrorist attacks. The legislation was heavily
supported through aggressive lobbying efforts on behalf of the airline industry. One
aspect of the unprecedented financial protection granted to this industry was to limit the
potential impact of liability lawsuits against the airlines to the liability insurance they
carried covering these incidents.

This liability protection went hand in hand with another purpose of this legislation. This
was the creation of the September 11th Victim Compensation Fund, an unlimited
commitment of our government to use our Treasury to provide a no-fault alternative to
litigation. The Fund would compensate the victims of these terrorist attacks and their
families for their economic and non-economic losses. At the time the legislation was
adopted and signed into law, estimates of potential victims reached as high as twelve to
fifteen thousand. Fortunately, the ultimate number of victims and the related cost of the
Compensation Fund is much lower than what had been expected. It is clear that Congress
and the President, in providing a fair no-fault alternative to protracted negligence
litigation, anticipated paying awards similar to those that would be recovered in court
proceedings. While the statute contained a more expansive definition of collateral
sources, the law generally relied on the same state laws that would be used to determine
loss in conventional litigation. There was no limit or ca on the compensation for loss
that may be awarded.

There can be an endless debate about whether the enactment of this legislation was an
appropriate allocation of public resources. After all, airlines have far greater resources
than just the insurance available per plane. They have paid massive negligence awards in
many cases in the past. Even if the financial impact of these attacks led to airline
bankruptcy, we have seen numerous major airlines suffer this fate without a catastrophic
effect on our economy. Nonetheless, there is no question that these actions of Congress
and the President also reflected the very noble and true outrage of our Nation and a
heartfelt desire to aid the victims of these attacks, as well as a desire to protect an
industry. The drafters and signer of this legislation clearly understood that the targets of
this attack by foreign hostile forces represented the essence of our system-the
government and the financial industries of our country. In subsequent airport security
legislation, Congress and the President similarly limited the risks of litigation for other
potential defendants. No non-terrorist defendant would have liability in excess of
applicable insurance.

Sandler O'Neill

Because of the unprecedented reach of this legislation, the unknown losses that may be
faced and the speed with which it was drafted and signed into law, the actual law left the
establishment of rules for the operation of the Victims Fund to the Department of Justice.
An independent Special Master was appointed, with broad powers to implement and
oversee the system.

A basic principal of regulation is that the regulations not contradict or override the
purpose of the statue. Unfortunately, in the current case, the Interim Final Regulations
have ignored the clear intention of the statute to use conventional methods in the
calculation of losses in conformity with current state laws. Instead, the regulations have
imposed inherent caps under Track A and a clear intention to abide with those caps under
Track B, based solely on the assumed resources available to the claimants. Such a
regulatory action is in clear contravention of the statute designed to compensate for losses
in a manner consistent with that applied in litigation. The Interim Final Regulations
undermine the intention of Congress and the President to provide a full and fair
alternative to litigation for all victims. The Interim Final Regulations replace this clear
statutory purpose with a concept more akin to that applied under I.R.S. regulations
governing the dispensing of charity benefits-a "need" based standard, as opposed to a
loss based standard.

The DOJ in adopting the regulations made very strong statements that the size of awards
would be limited for persons who earned above the 98th percentile of national income
because they were likely to have the resources to protect themselves and didn't need to be
fairly compensated for their loss. Unfortunately, in addition to ignoring the statute, the
imposition of such a cap ignores both the financial realities of living in many
communitities in the New York City area and the fact the Trade Center Victims were
chosen as targets precisely because of their financial success. It is easy to understand that
using a 98th percentile national cap had a far greater limiting effect in the New York area
for the many employees of companies in the Trade Center. For example, this would
imply that only 2%, or approximately 60, of the victims made over this amount. Our
company, as well as several others, provided compensation histories for many victims in
the Trade Center prior to the adoption of the Interim Final Rules. Our firm was among a
roster of companies with offices in the World Trade Center that reads like a "Who's
Who" of the financial sector of the economy. In essence, these employees were exactly the kind
of people Osama Bin Laden and his Al Qaeda network wanted to target-those
Americans who represented our capitalist system and the American dream. The families
of the people who were living this dream are now dealing with tremendous grief due to
the loss of their loved ones, as well as concerns over the enormous financial challenges
they will face in the months and years ahead. It was therefore completely clear to the
DOJ and Special Master that many times that number of persons made over the
unrealistic limit used in the regulations.

In addition to ignoring the statute's intention regarding the meaning of "loss", the
purported justification of imposing such limits to not unnecessarily use public resources

Sandler O'Neill

also ignores the fact that a significant portion of the governments cost may be paid by the
private sector. Section 409 of the statute provides that the United States is subrogated to
any claim paid under the statute. Since we can assume the government would seek to
minimize public expenditures, it would seem likely that the government will negotiate
with insurers for significant under these subrogation rights.

Overly Expansive Application of Collateral Sources

As written, the Interim Final Regulations adopted a very broad reach for the definition of
collateral sources. For example, voluntary survivors benefits that are paid by employers
would be included in collateral sources. This will obviously have the effect of
discouraging employers from making such payments. For example, our commitment to
pay for health insurance of families may similarly reduce their awards from the Fund.
This will force us, and other companies, to reconsider such voluntary efforts. This is,
simply, cruel and unnecessary. In addition, the regulations penalize those responsible
persons who saved in pension funds and purchased insurance by deducting the full
amounts of these benefits from the awards they could receive under the fund.

The statute clearly would allow a narrower scope in defining collateral source in the
regulations. For example, the definition of collateral source could have excluded vested
pension or retirement benefits (which are essentially nothing more than a form of savings
account which belong to an employee) or other amounts (such as term life insurance or
previously unvested interests in a retirement fund). As adopted, the regulations are
capricious and can serve no public policy purpose. The victims who were spendthrifts
who never saved are rewarded with fewer reductions from the awards, as compared to
persons who made voluntary contributions to pension funds or purchased whole life
insurance as a savings and investment vehicle. It was never the intent of our Congress
and the President for the presumption of need to replace the measurement of economic
loss.

Unfair Pain and Suffering Assumptions

The adopting release for the regulations provides that pain and suffering awards have
been fixed consistent with standards applied to law enforcement and military personnel.
While pain and suffering awards are always subjective, it is hard to understand how the
suffering of a group of civilians, completely unprepared for the risk of violent deaths and
injuries, could be equated with persons who have voluntarily chosen to put themselves at
risk of such death and injury as part of their daily job.

This type of an assumption is, again, completely inconsistent with the language of the
statute regarding compensation for non-economic loss. It imposes an unrealistically low

Sandler O'Neill

an inapplicable standard whose sole purpose is to limit the size of the award without
providing adequate compensation by any reasonable standard for civilians.

Conclusion

The statutory limitations on litigation designed to protect certain industries left the
Victims Compensation Fund as the only viable alternative to recover losses. The noble
intentions of Congress and the President to provide a fair alternative were structured to
provide restitution without limit. The Interim Final Regulations have been expressly
designed to alter the intended effect of the statute. This has put the squeeze on many
victims and families.

The victims we knew in the Trade Center were among the most highly motivated people
in our country. Their families shared their motivations and dreams. Most paid taxes at
the highest rates and never asked for, wanted or anticipated being on the government
dole. Quite a few comment letters sent to the DOJ prior to adopting the Interim Rules
took the shocking position that these people were being unjustly enriched at the public
expense. Unfortunately, this shocking position has found its way into the Interim Final
Rules.

The statute would have provided support to companies likely to be defendants in lawsuits
and just compensation for victims. This reflected national interest in preserving the
airline and other industries and national outrage on the attack on our American system.
Our government, through the legislative process, made a policy decision that the costs
were properly placed on our Nation's Treasury. What has happened through the Interim
Final Regulations is a trade-off, not envisioned by Congress or the President, which has
turned the legislation on its head-potential commercial-defendants have been protected
at a cost to individual victims. A strong argument can be made that such limitations on
awards, which have never before been found in our American litigation system, only
further victimized the victims.

We urge the Special Master and DOJ to reverse this injustice and act consistent with the
legislation and honor the memories of the many unfortunate victims.

Very truly yours,
Comment by:
Sandler O'Neill & Partners, L.P.
New York, NY

2002-01-22