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2002-01-22

Tuesday, January 22, 2002 4:55 PM
Cantor Fitzgerald L.P.'s Comments on Interim Final Rules


Attachment 1:

To: Kenneth L. Zwick
Director, Office of Management Programs
Civil Division
U.S. Department of Justice
Main Building, Room 3140
950 Pennsylvania Avenue, N.W.
Washington, DC 20530

Re: Interim Final Rule with Request for Comments, 28 C.F.R. Part 104

COMMENT OF CANTOR FITZGERALD L.P. ON THE U.S.
DEPARTMENT OF JUSTICE'S INTERIM FINAL RULES IMPLEMENTING
THE SEPTEMBER 11TH VICTIM COMPENSATION FUND OF 2001

Cantor Fitzgerald L.P., together with its affiliates, eSpeed, Inc. and TradeSpark L.P. (collectively referred to herein as "Cantor Fitzgerald"), submit these comments on the Department's "Interim Final Rules with Request for Comments," published at 28 C.F.R. Part 104, implementing the September 11th Victim Compensation Fund of 2001. Cantor Fitzgerald previously submitted comments in response to the Department's Notice of Inquiry, which are incorporated herein by reference and which shall be referred to as the "First Cantor Comment."
As Cantor Fitzgerald previously observed, the statute establishing the Fund was enacted to ensure that the victims of the September 11th tragedy and their families received full and complete compensation. The plain language of the statute - as well as the legislative history - makes it clear that the Special Master must fully compensate claimants for their economic and non-economic losses, except for the collateral source offsets. See First Cantor Comment at 21-22. There is absolutely nothing in the statutory language or the legislative history that authorizes the Special Master to discriminate against claimants based on their economic status or to award any claimant less than full compensation for their losses. Id.
One of the reasons it is so important that the Fund provide full and complete compensation for all claimants is that Congress, in the same statute, severely impeded the victims' ability to obtain full compensation in lawsuits. See The September 11th Victim Compensation Fund of 2001, PL 107-42 at § 408. Indeed, one of the Fund's primary purposes is to be an efficient alternative to lawsuits.
The Interim Rules, along with the Presumed Economic and Non-Economic Loss Tables, do not adequately serve the Fund's objectives. The Special Master has correctly recognized that for victims and their families to be able to decide whether to file a claim - and thereby waive their ability to sue - they must understand "how their award will be calculated and how much they would receive from the Fund should they file a claim." Statement by the Special Master at 9. The Interim Rules and Presumed Loss Tables fail to give the victims and their families this crucial information, thereby forcing many to either file lawsuits or delay their decision until the Special Master creates a track record of actual awards.
Cantor Fitzgerald commends the Department and the Special Master for devising a mechanism by which claimants may obtain an advance award of benefits prior to the completion of filing their claims. But to obtain these advance benefits, one must affirmatively opt into the Fund and thereby forego the right to sue. Thus, if the advance benefits program is to achieve its objectives, potential claimants must know right away how their claims will be decided so that they can decide whether to opt into the Fund. This includes knowing the formula that will be used to calculate presumed awards, and knowing whether payments from employers like Cantor Fitzgerald will be used to reduce any award from the Fund.
The Interim Rules also defeat the purposes of the Fund by undercompensating claimants, particularly in the area of non-economic loss. The fixed amount of presumed non-economic loss is arbitrarily low and bears no rational relationship to the statutorily mandated elements of non-economic loss. Moreover, by undercompensating claimants, the Department is defeating the statute's purpose of encouraging victims to opt into the Fund. Indeed, this is particularly true for those families who have received payments (e.g., life insurance) that will be subtracted from any Fund award as collateral source payments; if those families will receive little or nothing from the Fund, then they have no incentive to become a claimant and forego their right to sue.
I.
The Final Rules Should Clearly State that Voluntary Payments
To Victims and Their Families Made By Employers Are Not Collateral
Source Payments and Will Not Be Deducted from any Claimant's Award
Cantor Fitzgerald previously explained its intention to provide for the benefit of its lost employees' families 25% of the firm's profits that otherwise would have been paid to its partners over the course of five years. See Cantor's First Comment at 2. Although this stated intention has not created a legal entitlement or obligation, Cantor Fitzgerald remains absolutely firm in its intention to make such voluntary payments if the Department's Final Rules do not attempt to render them meaningless by counting such payments as "collateral source" offsets that are deducted from claimants' Fund awards.
The Department has properly concluded that the Fund should encourage, rather than discourage, private contributions to victims of the September 11th tragedy. See Special Master's Statement at 10 ("deducting charitable awards from the amount of compensation would have the perverse effect of encouraging potential donors to withhold their giving until after claimants have received their awards from the Fund"). Unfortunately, the Interim Rules, as drafted, do not clearly indicate that all voluntary payments from private entities and individuals will not be considered to be "collateral source payments" by the Special Master. This confusion about whether an employer's voluntary payments will reduce a claimant's award may prevent certain victims or their families from filing claims with the Fund. The Final Rules should clearly state that such voluntary payments shall not be considered "collateral source payments" regardless of whether they are made by a 501(c) charitable organization.
Congress clearly intended to encourage employers - and not just charitable organizations - to make voluntary contributions to victims' families in the wake of the September 11th tragedy. Immediately after the tragedy, bills were introduced in both the House and the Senate that provided, among other things, an incentive to encourage employers to make such voluntary payments to victims and their families. As its last legislative act of 2001, Congress passed H.R. 2884, the Victims of Terrorism Tax Relief Act of 2001 ("The Victims Tax Act"). Section 102 of the Victims Tax Act amended the Internal Revenue Code so that amounts voluntarily paid by an employer to an employee who died in the September 11th attacks are not included in the employee's gross income, and thus not subject to income tax.
One of the Victims Tax Act's original sponsors, Senator Max Baucus (D-Mont.), plainly indicated that one of the purposes of this provision was to encourage employers to make voluntary payments, just as the Act encouraged charitable organizations to make such payments:
In the wake of the attacks, a number of employers who had workers killed in the World Trade Centers, in the Pentagon, and in the airplanes used as weapons stepped up to the plate with generous offers of help to their lost colleagues' families.
Under current law, payments such as these would typically be taxed, which would reduce the amount of help going directly to the surviving families. Our bill exempts these payments from Federal income tax liability.
. . .
The charitable community is playing an important role in helping our Nation recover from this tragedy. Our bill makes it easier for charitable organizations to make disaster relief payments to victims and their families.
Our bill also makes it easier for companies to establish private foundations to help the survivors with both short-term and long-term needs, such as scholarships for the victims' children.
147 Cong. Rec. S11991-01, S11992-S11993.1 It would be sadly ironic to have Congress exempt private voluntary assistance from income taxation in the Victims Tax Act, only to have the Special Master claim the entire amount of such assistance for the government's treasury as a "collateral source payment" under the September 11th Victims Compensation Fund. Such a result would take money from the pockets of victims, thwart the intent of the donors, discourage private victim assistance, and contravene clear Congressional intent.
The Department and the Special Master must be guided by Congressional intent in determining what is a "collateral source payment" that must be deducted from a claimant's Fund award. Both the Department and the Special Master already have recognized that Congress, in enacting the September 11th Victims Compensation Fund of 2001, did not intend to discourage charitable giving and therefore did not intend for such payments to be considered "collateral sources" under the statute. As Cantor Fitzgerald previously explained, voluntary payments made by employers are no different than charitable gifts in this respect. Cantor's First Comment at 9-14. The actions and expressed intentions of Congress surrounding the Victims Tax Act further support the conclusion that voluntary payments from employers also should be encouraged and that such payments should not be considered "collateral source payments" in the Final Rules promulgated by the Department.
Section 104.47 of the Interim Rules should be amended to clarify that voluntary payments by employers in the wake of the September 11th tragedy are not collateral source payments subject to offset. Although this result could be achieved in a variety of ways, Cantor Fitzgerald proposes the following additional subsection to Interim Rule § 104.47(b), which addresses what payments are not collateral sources:
(3) Voluntary payments distributed by employers to the beneficiaries or estate of the decedent, to the injured claimant, or to the beneficiaries of the injured claimant; provided, however, that on September 11, 2001 the recipient had no pre-existing entitlement to such payments as a result of life insurance, pension funds, or death benefit programs.
II.
A Significant Group of Victims Is Being Deprived of Vital
Information About How a Fund Award Would Be Calculated for Them
The Presumed Loss Tables promulgated by the Department do not reflect how the loss calculation will be made for victims who earned in excess of $225,000 annually. Even the Special Master, in his Statement, recognized that information about how the loss calculation will be made is critical for the victims and their families. There simply is no justification for keeping a select group of claimants in the dark about how the Special Master would calculate their damages.
The Department attempted to develop a neutral formula for calculating economic loss that used standardized assumptions from sources such as the Bureau of Labor Statistics, the Board of Actuaries of the Civil Service Retirement System, and the Board of Actuaries of the Military Retirement System. See Loss Tables at 1-2.2 The Interim Rules, however, do not apply this "neutral" formula to all claimants equally. Rather, the Interim Rules discriminate against those claimants whose decedents earned more than $231,000 by precluding the Special Master from issuing a "presumed award" for economic loss above the $231,000 income level. See Interim Rules § 104.43(a). Thus, it would appear that a claimant whose decedent had an annual income above $231,000 could not receive a "presumed award" under Track A (id. at § 104.31(b)(1)) that would compensate her for her full economic loss. Rather, she would be forced to participate in a hearing under Track B, which would still use the artificially-capped "presumptive award methodology" outlined in § 104.43(a). This is manifestly unfair and contrary to the purpose of the Act, which is to fully compensate all victims and their families according to their actual loss.
Both the Department and the Special Master have gone out of their way to suggest that the "neutral" formula used to create the Presumed Loss Tables will not apply to claims beyond a certain income level.3 Although the Interim Rules and the Presumed Loss Tables do not contain any express maximum limits on the amount of final awards and the Special Master has stressed that there are "no caps" on individual awards, the fundamental question remains: How are awards going to be calculated for claimants whose annual incomes exceed the Department's Presumed Loss Tables?
Cantor Fitzgerald reiterates that the statute contains no language or legislative history that gives the Department or the Special Master the discretion to artificially limit the amount of compensation paid to any particular class of claimants. Rather, the whole purpose of the statute is "to provide compensation." PL 107-42 at § 403. Indeed, the statute explicitly requires that the Special Master must determine the amount of each claimant's actual economic and non-economic losses, and only then may the Special Master calculate the amount of compensation to which the claimant is entitled.4 Thus, if the Special Master intends to award less than a claimant's actual losses, he still must make a determination of what those losses actually are, so that the disparity between the award and the actual economic and non-economic losses is apparent.
Before deciding whether to participate in the Fund, victims and their families must know how the Special Master is going to calculate their actual losses and - if the Special Master is not going to compensate them for all of their damages - the formula for how the Special Master will reduce the amount of their actual damages to make an award from the Fund. How can any attorney advise a client to opt into the Fund without knowing the range of the probable award, particularly where the decedent had a significant amount of life insurance or other benefits that the Special Master may deduct from any Fund award? By failing to give this basic information, the Interim Rules, as drafted, either force certain classes of potential claimants to eschew the Fund or, at the very least, delay filing a claim until the Special Master establishes a pattern through published awards.
The Department contends that the Special Master's authority to consider "the individual circumstances of the claimant" in making an award gives it the authority to effectively limit the maximum amount of Fund awards in a way that certain claimants receive awards for less than their full damages. The Department is incorrect. Congress could have written a maximum limit into the statute, expressly charged the Department with setting a maximum limit on awards, or even limited the total amount of payments that could have been made by the Fund. Congress did none of these things. In fact, the only authority Congress gave for awarding claimants less than their actual damages was to charge the Special Master with reducing the amount of an award by the amount of collateral source compensation a claimant received. § 405(b)(6). Nothing in either the statute or the legislative history supports the Department's conclusion regarding its authority to effectively set a maximum limit on Fund awards.
If there really is a maximum limit on the amount of awards from the Fund, then the Final Rules should spell it out. If, as the Special Master has repeatedly suggested, there are "no caps" on Fund awards, then the Final rules should expressly state this fact and the Department should publish the formula the Special Master will employ to determine the amounts of economic and non-economic losses for all victims, including those not included in the current Presumed Loss Tables. And all victims - including those whose annual income exceeded that listed on the Presumed Loss Tables - should have the opportunity to participate in Track A (and thereby perhaps avoid a Track B hearing) by having the Special Master review their claim form and offer them a presumed award that is not artificially limited to an amount less than their actual damages.
The present Interim Rules and Presumed Loss Tables arbitrarily discriminate against a class of potential claimants for no good reason and unfairly disadvantage people who are trying to decide whether to participate in the Fund. As such, they should be amended:
(1) The following language should be added at the beginning of § 104.43: "There are no maximum limits on the amount of awards for economic loss, and the Special Master shall not employ the 'presumed economic loss' as a maximum limit on a claimant's recovery for actual economic losses."
(2) The following language should be deleted from § 104.43(a): "up to but not beyond the 98th percentile of individual income in the United States for the year 2000."
(3) The Presumed Loss Tables should be supplemented by the addition of various annual income levels above $225,000, up to $1,000,000. Accordingly, the following language should be deleted from page 1 of the Presumed Loss Tables: "For those victims whose salary exceeded the top 2 percent of wage earners (as defined by the IRS for the year 2000), the Special Master will compute the presumed award based on an average income equal to the minimum amount earned by the top 2 percent of wage earners."
(4) The formula used to create the Presumed Loss Tables also should be published.
III.

The Amount of Presumed Non-Economic Loss Is Woefully Inadequate

Congress broadly defined "non-economic losses" to include all forms of physical and emotional pain and suffering. Moreover, unlike its definition of economic loss, Congress did not tether the award of "non-economic losses" to those types of damages recoverable at state law. Compare PL 107-42 at § 402(5) with id. at § 402(7). Thus, Congress clearly intended compensation for non-economic losses to be liberally applied. The flaw with the Department's Interim Rules is that they arbitrarily fix the amount of non-economic loss without reference to the elements of such loss outlined by Congress or the jury awards and court judgments typically rendered for such elements.
The Interim Rules fix the presumed award for non-economic losses at $250,000 for decedents and $50,000 for each dependent. The structure of the Interim Rules, as well as the Statement by the Special Master, strongly suggest that the Department did not properly value each of the elements of non-economic loss the statute requires to be determined.
The Department seeks to justify the amounts it has fixed for non-economic losses - which include, inter alia, physical and emotional pain and suffering, disfigurement, and loss of enjoyment of life5 - by referring to two federal statutes. See Statement by the Special Master at 9-10. These statutes, however, are in no way designed to set a benchmark for measuring such losses. The first statute, entitled "Servicemembers' Group Life Insurance," 38 U.S.C. § 1967, is merely life insurance. It contains no formula for calculating any form of loss for pain and suffering or any of the other elements of non-economic loss the Special Master is charged with determining. The $250,000 figure is simply the maximum amount of life insurance available under the plan.
The second statute, entitled Public Safety Officers' Death Benefits, 42 U.S.C. § 3796, similarly contains no methodology for evaluating the various elements of non-economic losses the Special Master must determine for each claimant to the September 11th Victims Compensation Fund. As with servicemembers' life insurance, the $250,000 amount in 42 U.S.C. § 3796 represents the maximum death benefit, and is not a proxy for pain and suffering or other non-economic damages.
Even more troubling is the Department's statement that its $50,000 per dependent presumed non-economic loss contains a "noneconomic component of 'replacement services loss.'" Statement by the Special Master at 10. Of course "replacement services" under the statute drafted by Congress are part of the definition for economic loss, not non-economic loss.
Taken together, the Department's use of federal life insurance/death benefits as the lodestar for pain and suffering and its mistaken inclusion of "replacement services" as non-economic loss suggest that the Department's extraordinarily low maximum limits for the presumed award for non-economic loss are arbitrary, capricious, and at odds with the plain language of the statute. See also and , Sept. 11 Families Fight Fund Rules, WASH. POST at B1 (Jan. 17, 2002) (The Special Master "told families that he has no power to increase the $250,000 'pain and suffering' element of the award. He said he negotiated that figure with the White House, the Justice Department, and the Office of Management and Budget. 'If that number is going to be changed, it will have to be by Republicans applying pressure to the administration,' he told a group of families in New York."); , Politics and the Plan, NEWSDAY at A7 (Jan. 18, 2002) (the Special Master "told families in private meetings this week that he does not have the power to lift a $250,000 cap on noneconomic damages . . . [and that] they must apply political pressure to the White House Office of Management and Budget. . . . The limits . . . suggest to some that political ideology is playing a role in the compensation formula [because a] limit of $250,000 for pain and suffering awards is a cornerstone of GOP tort reform legislation.").
Certainly, there is nothing to suggest that the Department engaged in any rational methodology to fix a value on each of the elements of non-economic loss enumerated by Congress: "physical and emotional pain, suffering, inconvenience, physical impairment, mental anguish, disfigurement, loss of enjoyment of life, loss of society and companionship, loss of consortium (other than loss of domestic service), hedonic damages, injury to reputation, and all other nonpecuniary losses of any kind or nature." PL 102-47 at § 402(7). This is in stark contrast to the presumed economic loss articulated by the Department, for which the Department at least sought to identify the elements of its calculations and its basic methodology.
If the Department intended to set a standardized amount of presumed non-economic loss, it should have considered, inter alia, the amount of damages routinely awarded by courts for each of the elements of non-economic loss as defined by Congress. After all, Congress created the Fund as an alternative to litigation with the express purpose of compensating victims of the September 11th tragedy.
Even a cursory review of the reported jury verdicts and cases reflects that $250,000 is grossly inadequate compensation for victims' non-economic losses. See, e.g., Ramos v. La Montana Moving & Storage, Inc., 247 A.D.2d 333, 333-34 (N.Y. App. Div. 1st Dep't 1998) (where decedent was struck by an automobile and lived for 15 to 30 minutes, the trial court erred by reducing the $3,000,000 jury award for conscious pain and suffering to $250,000, and the appellate court accordingly increased the award to $900,000).6
This is especially true for claims involving surviving victims who must undergo extraordinarily painful treatments such as debridement. See, e.g., Weigl v. Quincy Specialties Co., 2001 WL 1664667 (N.Y. Sup. Ct. Oct. 23, 2001) (where plaintiff "underwent excruciating debridements and two skin graft surgeries" as a result of burns to 17% of her body and the jury awarded her $19,410,000 for past and future pain and suffering, trial court analyzed the range of recoveries in recent New York burn cases and reduced the award to $8,000,000 - an amount some 32 times the presumed amount of non-economic loss in the Department's Interim Rules). Cantor Fitzgerald had a small number of employees who survived the attack on September 11, but suffered horrible burns over large portions of their bodies. One of these employees has since died, and the rest of these victims will bear excruciating pain for the rest of their lives. To presume that their pain and suffering is worth only $250,000 is manifestly unjust.
As Cantor Fitzgerald previously observed,7 setting a presumptive award for non-economic loss can be beneficial for claimants, so long as it does not operate as a maximum limit on their recovery and those claimants who elect a hearing can have a real possibility of obtaining an award in excess of the presumed award, so long as such an award is warranted by the merits. However, the Department must use case law and jury verdicts as its guide in setting the amount of the presumed non-economic loss. A presumptive award of $250,000 falls far short of adequate compensation and is without any legal support whatsoever. The Department should derive its presumed non-economic loss from an analysis of the amounts juries awarded for each of the elements of non-economic loss as defined by Congress.
CONCLUSION
For the foregoing reasons and those contained in Cantor's First Comment, the Department should revise the Interim Rules to (1) declare that voluntary contributions from employers shall not be collateral offsets, (2) provide a Presumed Loss Table and corresponding award for every potential claimant based on the same formula, regardless of income level, and (3) significantly increase the amount of the presumed non-economic

loss as reflected by numerous jury verdicts.
Dated: January 22, 2002
Respectfully submitted,



Comment by:
General Counsel & Secretary
CANTOR FITZGERALD L.P.
New York, New York

2002-01-22