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2002-01-18

January 18, 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, D.C. 20530
Fax 301 519 5956

and

Kenneth R. Feinberg
Special Master WTC Compensation Fund
The Feinberg Group
780 Third Avenue, Suite 2202
New York, N.Y. 10017-7076
Fax 212 527 9611


Re: COMMENTS, from Kreindler & Kreindler, 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:

Our law firm, Kreindler & Kreindler, represents family members of over
100 decedents in the World Trade Center disaster. Our clients are family members of
deceased occupants of the WTC towers, and the Pentagon, and passengers of the four
aircraft involved in the hijackings and crashes. We write to you on their behalf. We
support the concept of the Victims' Compensation Fund, and we would like it to succeed.
We are gravely concerned, however, 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 regulation 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 file their claims
with the Fund, which we cannot do now in all but a few cases.


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 statute limited the liability of the air carriers involved. Title IV of that
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 the Fund legislation was "to provide compensation to any individual (or relatives
of a deceased individual) who was physically injured or killed as a result of the terrorist-related aircraft
crashes of September 11th, 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 airport operators from whose airports the
doomed flights originated.

These legislative enactments drastically limited the rights of the families to
full and fair compensation through the civil litigation process after the disaster. 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 and
relatives. 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 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 finds...." [28 CFR Part
104, Summary] The general reaction had been disappointment and sharp criticism.
Although described as "procedural" the rules are much more; they are mainly substantive
rules which are contrary to the letter and spirit of the enabling legislation and make it
impossible to fulfill the statutes' purpose. These "interim final" rules and regulations
must be modified to cure serious deficiencies and to avoid legal challenges in the courts.


OBJECTIONS TO THE INTERIM FINAL REGULATIONS AND THE
SUPPORTING TABLES

1. The Regulations and supporting tables violate the Congressional mandate.
If the December 21, 2001 "interim final" regulations and the tables of presumed losses are
not modified and are applied as the Special Master had 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)].

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...; (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 we applaud this
statement of purpose by the Special Master 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 statute 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 Victim Compensation Fund
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, 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 put it squarely, unless there are
changes in the regulations and the way the Special Master has indicated they will be
applied there are effectively arbitrary limitations on recoveries of both economic and non-
economic losses in violation of the Fund statute. They may not be called "caps" but they
are effective caps. The only "cap" mentioned directly or indirectly in the Statute is the
Limitation on airline liability (Sec. 408(a)).


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.

Clearly, 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 ad 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 Sec. 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 tortured text of Sec.104.42 is
a clear violation of Sec. 402 (5), and a clear violation of the structure of Title IV, which
contains both Sec. 402 (5) and Sec. 408 (b)(2).Sec. 402 (5) deals with the level of damages
and Sec. 408 (b)(2) deals with the heads of damages.


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.

Congress did not enact ambiguous damage standards, and it certainly
didn't intend to permit the Special Master to eliminate objective state law economic loss
standards completely. The statue 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 adding their own
"interpretation" especially if the result is de facto arbitrary limits on recoveries.


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 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, Sec. 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. Sec. 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
Fund statute. Nowhere in the Fund 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 has made the loss determinations "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, improperly deviate from
State law, including, specifically, New York law, in direct contravention of the statute.

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
in necessary for inclusion of these figures is available.


In the regulations which have been promulgated by the Justice Department
and/or the Special Master and the tables of presumed economic losses they have 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, where many of the
victims actually were, were not even set forth in the tables! One 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 give honest and accurate figures on economic loss to those decedents with very
high earnings. Judging from the numbers provided by the Special Master 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 his earnings over $231,000 to come
in with such low losses. 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 and unjust, and whatever the mechanics were for grinding down 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 had been given for the arbitrary elimination of all earnings figures
above the 98th percentile. It seems to have come out of left field with no rationale suggested.
The Special Master or the Justice Department seems to feel that differences between
awards should be less than differences between real life earnings. That may be their
subjective opinion, but 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 are so low; and much less than 50% of
awards in recent civil cases, in most cases.

The tables and calculations should be revised to include figures from the 99th
and 100th percentile, and they should be taken into consideration.


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 Sec.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. For the purpose of making loss projections the Special Master will
consider the victim's average income for the years 1998-2000 rather than the victim's 2001
earnings and the rate of income growth through September 11, 2001. In most cases,
averaging lowers the income base from which projections are made. State law makes
earnings at the time of death the touchstone for future loss calculations.

B. 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.

C. 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 Sec. 104.43; Presumed Economic Loss tables, II A. Step 1. Income taxes are not
deducted under the laws of many states. New York is one of them. Thus the consideration
of taxes will violate State law for many claimants and thus violate the Fund statute. New
Yorkers, who make up the majority of the claimants are denied compensation because of
the improper methodology of the 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 to 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. Furthermore, if New York law is the
applicable law for economic loss, the regulations violate New York law because New York
law prohibits deduction or consideration of income taxes. Coleman v. NYCTA, 37 NY2d
137, 371 NYS2d 663 (1975); NY Pattern Jury Instructions 2:280.

D. 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.

E. 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.

F. The wage increase assumptions in the tables of economic losses attached to
the Regulations are based on national earnings of federal, civil and military employees.
Had they been based on New York earnings in the private sector, which are available, they
would have shown significantly higher losses. Most of the decedents worked or lived in
New York. [This revised January 21, 2002]

G. The "presumed" value of non-economic loss sustained 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's 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.
Sec. 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's intent to be
properly responsive and not in 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 amount 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
repaid in retirement. Neither should be considered collateral source income. The
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 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, Sec.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 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 be considered a collateral
source payment. The New York State legal authorities recommended that workers'
compensation not be considered a collateral source.

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 replaced 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 judgments 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
intent. Congress did not authorize the Attorney General or the Special Master 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 one of the claimant's own individual circumstances
and relative to other 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
victim's household, dependant relatives living in a victim's house hold or other dependant
person's sharing a household with a victim.

Thus there has been a failure in the Regulations to deal with the "domestic
partner" issue. Same sex partners, a registered domestic partner, and fiances should be
permitted to recover, and this should be spelled out in the Regulations.

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 rights 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 is civil action has not be waived.
This oversight should be remedied. Surely if Fund benefits are not available to a claimant
because a lack of eligibility the right to commence a civil action should not have been
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 and should
be corrected. 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 layman 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, that says:

The preceding sentence [which provides that upon the submission of a
claim to the Fund the claimant 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? They have been
filed within the allotted time, which is 30 days from the filing of the Regulations, which was
December 21.

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. Federal 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 the APA requirements. An APA violation here
would be especially troublesome because of our charge that the most important provisions
of the regulation 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:
Kreindler & Kreindler
New York, N.Y.

2002-01-18