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Gross v. German Foundation Industrial Initiative

August 3, 2006


On Appeal from the United States District Court for the District of New Jersey. D.C. Civil Action Nos. 02-cv-2936 & 03-cv-3181. (Honorable William G. Bassler).

The opinion of the court was delivered by: Scirica, Chief Judge


Argued April 26, 2006

Before: SCIRICA, Chief Judge, SMITH and STAPLETON, Circuit Judges*fn1


At issue in this World War II reparations case is whether a suit seeking additional funds for victims of Nazi-era wrongs is justiciable. Claimants contend German companies owe "interest" on their payments to a reparations fund created with the substantial involvement of the United States and German governments to benefit Nazi victims or their descendants. The District Court held the claim presented a non-justiciable political question. We will reverse and remand.

I. Background

During the Nazi era, German companies employed slave and forced labor, appropriated private property, and refused to pay insurance policies. Legal redress was largely unavailable to the victims of these crimes for nearly half a century*fn2 because their claims against the German government and German companies were barred or deferred by various international agreements and treaties, intended to facilitate the rebuilding of the German economy.*fn3

The situation began to change after the fall of the Berlin Wall in November 1989, when the Federal Republic of Germany, the German Democratic Republic, the United States, Great Britain, France, and the former Soviet Union entered into the Two-Plus-Four Treaty,*fn4 ending the rights formerly held by the Allies in Germany. The treaty was silent on the issue of private individuals' war-related claims against the German government and German companies, but German courts interpreted it to terminate the previous bar on such claims. E.g., Oberverwaltungsgericht [OVG] [Administrative Court of Appeals, Muenster] NJW 1998, 2302, at 8--10, cited in Iwanowa v. Ford Motor Co., 67 F. Supp. 2d 424, 455 (D.N.J. 1999); Landgericht [LG] [District Court, Bremen] 1998, 1 O 2889/90, at 13, cited in Iwanowa, 67 F. Supp. 2d at 455; see also Am. Ins. Ass'n v. Garamendi, 539 U.S. 396, 404--05 (2003).*fn5

In light of the German courts' interpretation of the treaty, many uncompensated victims brought claims against German companies in United States courts. Victims and their heirs, both individually and in class actions, sued banks, insurers, and manufacturers that had used or profited from slave and forced labor, or wrongfully appropriated assets during the National Socialist era. In response to early cases and in preparation for further litigation, seventeen major German corporations formed an unincorporated association called the German Foundation Industrial Initiative. The seventeen founding members were Allianz AG, BASF AG, Bayer AG, BMW AG, Commerzbank AG, DaimlerChrysler AG, Degussa Huls AG, Deutsche Bank, Deutz AG, Dresdener AG, Hoechst AG, RAG AG, Robert Bosch GmbH, Siemens AG, Veba AG, ThyssenKrupp AG, and Volkswagen AG.

A. Negotiations for a Reparations Fund

The United States and German governments, aware of the significance of the underlying claims and the seriousness of the risk posed to the German economy, encouraged negotiations between plaintiffs and defendant German corporations. In the Fall of 1998, the German government asked Deputy Secretary of the Treasury Stuart Eizenstat*fn6 to facilitate a resolution of the class action suits. Over the next year and a half, Deputy Secretary Eizenstat chaired a series of meetings among lawyers for the victims, lawyers for the German companies, and representatives of the German government. Leading negotiations on the German side were Chancellor Schroeder's Envoy and Chief German Negotiator, Count Otto Lambsdorff, and his predecessor, Bodo Hombach.

On February 16, 1999, German Chancellor Gerhardt Schroeder, joined by the German companies that comprised the German Foundation Industrial Initiative, announced plans for formal negotiations to settle all pending litigation in United States courts relating to German companies' Nazi era conduct. The United States State Department hosted the first plenary session of formal negotiations on May 11 and 12, 1999. The goal was to create a foundation (a reparations fund) to compensate Nazi-era victims and to fund ongoing projects to prevent religious and ethnic intolerance in Germany. In exchange for funding the foundation, German companies would receive "legal peace"-the termination and resolution of all suits against them in United States courts on WWII-era claims and an assurance of protection from future suits.

A total of 12 plenary sessions were held in Bonn and Berlin, Germany, and in Washington, D.C. Lawyers in the pending cases joined government representatives from the United States, Germany, Israel, Belarus, the Czech Republic, Poland, Russia, Ukraine, representatives from the Conference on Jewish Material Claims Against Germany, and representatives from the German Foundation Industrial Initiative.

Negotiations reached a breakthrough in December 1999. Responding to an offer from the German companies to fund the foundation with DM 8 billion, the plaintiffs' lawyers, with the support of Poland, the Czech Republic, the Republic of Belarus, and the Ukraine, countered on December 13 with an offer for DM 10 billion. President Bill Clinton wrote to Chancellor Gerhard Schroeder that day, urging acceptance of the DM 10 billion"counteroffer," which was "a firm commitment for settlement of which we both could be proud." See Garamendi, 539 U.S. at 405--06. The next day, Chancellor Schroeder accepted the counteroffer, thanking President Clinton for his "decisive impulses for a consensus which could be accepted by all parties involved." Also that day, Deputy Secretary Eizenstat communicated to the victims' attorneys the German Foundation Industrial Initiative's and German government's acceptance of this offer. President Clinton announced the agreement from the Oval Office the following day, December 15. Two days later, the parties made a formal public announcement in Bonn, Germany.

Over the ensuing months, the parties negotiated allocation details-how much money would go to each partner organization and which types of victims were eligible-and detailed procedures for the Foundation's operation. On July 20, 2000, the foundation, called "Remembrance, Responsibility and the Future," was formally established.

B. The Berlin Accords

The documents establishing the Foundation, collectively referred to as the Berlin Accords or the Berlin Agreements, consist of the Joint Statement, the Executive Agreement between the United States and Germany, and the Foundation Law. The Joint Statement-formally titled "The Joint Statement on occasion of the final plenary meeting concluding international talks on the preparation of the Foundation 'Remembrance, Responsibility and the Future'"-sets forth the goal of the Foundation, which is to "provide dignified payments to hundreds of thousands of survivors and to others who suffered from wrongs during the National Socialist era and World War II." Preamble, para. 12. The Joint Statement commits the German government and German industry to a DM 10 billion capitalization, and places responsibility for collecting the German companies' share on the German Foundation Industrial Initiative. Particularly significant for this case, Section 4(d) of the Joint Statement provides, in part:

German company funds will continue to be collected on a schedule and in a manner that will ensure that the interest earned thereon before and after their delivery to the Foundation will reach at least 100 million DM.

The second document of the Berlin Accords, the Executive Agreement, outlines the United States and German governments' commitment to the Foundation. It obligates the United States Executive, in all cases for which it is notified of a claim against a German company arising out of the WWII era, to file a statement of its foreign policy interests with the court in which the claim is pending, stating that United States' foreign policy interests favor resolution through the Foundation. Specifically, Article 2(1) of the Executive Agreement provides:

The United States shall, in all cases in which the United States is notified that a claim described in article 1(1) has been asserted in a court in the United States, inform its courts through a Statement of Interest, in accordance with Annex B, and, consistent therewith, as it otherwise considers appropriate, that it would be in the foreign policy interests of the United States for the Foundation to be the exclusive remedy and forum for resolving such claims asserted against German companies as defined in Annex C and that dismissal of such cases would be in its foreign policy interest.

See also Art. 3(4) ("The United States shall take appropriate steps to oppose any challenge to the sovereign immunity of the Federal Republic of Germany with respect to any claim that may be asserted against the Federal Republic of Germany concerning the consequences of the National Socialist era and World War II."). Article 1(1) describes the type of "claim" that triggers the filling of a Statement of Interest:

The parties agree that the Foundation "Remembrance, Responsibility and the Future" covers, and that it would be in the their interests for the Foundation to be the exclusive remedy and forum for the resolution of, all claims that have been or may be asserted against German companies arising from the National Socialist era and World War II.

The Executive Agreement also commits the German government to oversight of the Foundation. See id., Art. 1(3) ("The Federal Republic of Germany assures that the Foundation will be subject to legal supervision by a German governmental authority[.]").

The final document of the Berlin Accords, the Foundation Law, is codified under German law. The Foundation Law went into effect on August 12, 2000, establishing the Foundation as a legal entity and an instrumentality of the German government, subject to initial oversight by the Ministry of Finance. Foundation Law § 8(1). It specifies that DM 5 billion of the Foundation's funding would be contributed by the German government, and the other DM 5 billion through the German Foundation Industrial Initiative. Id. §3(3). It establishes a 27-member Board of Trustees and a three-member Board of Directors. Id. §§ 5--6. The Board of Trustees is to make decisions on "all fundamental matters" relating to the Foundation, id. § 5(5), and to perform roughly the same function a board of directors would perform in a United States corporation. The United States is permitted to appoint two members to the Board of Trustees: a representative of the United States government and an attorney to represent the interests of the victims. The Board of Directors is to represent the Foundation in judicial and extra-judicial matters, manage the day-to-day business of the Foundation, and implement the decisions of the Board of Trustees, id. § 6(3), and in this way to function like the officers of a United States corporation.

C. Obtaining Dismissals of Cases Pending in United States Courts

The Berlin Accords conditioned contributions to the Foundation on the dismissal of all pending and future WWII-era claims against German companies in United States courts. Joint Statement, Preamble, para. 13; id., § 4(b). Claimants contend at the time the Joint Statement and Executive Agreement were signed on July 17, 2000, the parties expected it would take about six months to obtain dismissal of cases then pending in United States courts. In August 2000, at the request of the parties, the Judicial Panel on Multi-District Litigation consolidated fifty-three cases involving slave and forced labor claims-most of which were putative class actions-before Judge Bassler in the United States District Court for New Jersey. MDL Transfer Order, No. 1337 (August 4, 2000); see In re Nazi Era Cases Against German Defs. Litig., 213 F. Supp. 2d 439, 442 (2002). Suits involving unpaid insurance policies proceeded in the Southern District of New York before Chief Judge Mukasey; and suits against German banks involving unpaid insurance policies proceeded in the Southern District of New York before Judge Kram.

After consolidation of the slave and forced labor claims but before class certification, the parties sought permission to dismiss the suits with prejudice in light of the proposed payments from the Foundation. Judge Bassler approved the voluntary dismissals of 49 pending cases on December 5, 2000, but sounded a cautionary note:

[O]f great concern to Plaintiffs in these actions is the prospect that full funding of the Foundation might never be achieved, and that as a result they would have dismissed their claims with prejudice for nothing. The Court shares this understandable concern, and for this reason all of the Orders of Dismissal (with the consent of the parties) were made expressly subject to Federal Rule of Civil Procedure 60(b). . . . Pursuant to Rule 60(b), should the Foundation not achieve full funding, Rule 60(b) would provide the Plaintiffs who have dismissed with prejudice their complaints in reliance on full funding with an avenue for relief.

In re Nazi Era Cases, 213 F. Supp. 2d at 445 (citing In re Nazi Era Cases Against German Defs. Litig., 198 F.R.D. 429, 446--47 (D.N.J. 2000)). On December 14, 2000, Chief Judge Mukasey similarly entered an order granting leave to dismiss the actions against the German insurance companies.

Judge Kram refused to grant voluntary dismissal of the plaintiffs' claims against the German banks. On March 8, 2001, she denied the voluntary motion to dismiss because it would "subject all absent class members to the detrimental statement of interest and the other terms of the Compact, even though the absent class members' only source of compensation for their claims has yet to be fully funded." See In re German and Austrian Bank Litig., No. CIV 3938 SWK, 2001 WL 228107, at *6 (S.D.N.Y. Mar. 8, 2001). At a May 10, 2001 rehearing, Judge Kram granted the motion to dismiss, conditioning the grant on certain changes to the Foundation's allocation schedule.

See Duveen v. U.S. Dist. Court (In re Austrian & German Holocaust Litig.), 250 F.3d 156, 160--62 (2d Cir. 2001). Plaintiffs and defendants sought a writ of mandamus. On May 17, 2001, the Court of Appeals for the Second Circuit granted the writ, compelling Judge Kram to grant leave to dismiss all claims without conditions. Id. at165. The judge granted the dismissals on May 18 and 21, 2001. On May 30, the German legislature declared "legal peace," triggering the obligations of the German government and the German companies' to each pay DM 5 billion to the Foundation. On October 19, 2000, the United States and German governments exchanged diplomatic notes stipulating, in accordance with Article 5 of the Executive Agreement, that the Executive Agreement entered into force on that same date.

With all cases pending in United States courts dismissed and with the Executive Agreement in force, the German government fulfilled its DM 5 billion commitment in two equal payments on October 31, 2000, and December 31, 2000. The German Foundation Industrial Initiative was not as prompt. The parties dispute the timing and amounts of the German Foundation Industrial Initiative's payments toward its obligation of DM 5 billion principal, plus DM 100 million "interest." In June 2001 it transferred the contributions it had collected to date, which represented the bulk of its payments. It made another contribution in October 2001. After a final payment in December 2001, the German Foundation Industrial Initiative's contribution totaled DM 5.1 billion.

D. Dispute Over the "Interest" Obligation

The parties' dispute in this case centers on the German Foundation Industrial Initiative's obligation to pay "interest" on the German companies' DM 5 billion contribution to the Foundation. Section 4(d) of the Joint Statement provides:

Assuming the request for transfer referred to in paragraph (e) is granted, the DM 5 billion contribution of German companies shall be due and payable to the Foundation and the payments from the Foundation shall begin once all lawsuits against German companies arising out of the National Socialist era and World War II pending in U.S. courts including those listed in Annex C and D are finally dismissed with prejudice by the courts. . . . German company funds will continue to be collected on a schedule and in a manner that will ensure that the interest earned thereon before and after their delivery to the Foundation will reach at least 100 million DM.

The Joint Statement uses the term "German companies," defined in Annex A, to describe the German corporations, and other businesses, that would contribute DM 5 billion to the Foundation in exchange for "legal peace." The Joint Statement provides that if the full contribution were not raised from the German companies, the seventeen founding members of the Initiative would make up the difference. In exchange, the founding members had exclusive decision making authority for the Initiative.

Claimants contend the German Foundation Industrial Initiative owes "interest" in excess of the amount of DM 100 million set forth in Section 4(d) of the Joint Statement. Interpreting "at least" as a floor and not a ceiling, they contend "interest" is owed in the amount earned on third-party contributions for the period those contributions were held by the German Foundation Industrial Initiative prior to their transfer to the Foundation. Claimants also contend "interest" is owed to compensate the Foundation for the unexpected delay in the German Foundation Industrial Initiative's completion of its contribution-for the time period between dismissal of the last case and full payment of the obligation.

Claimants contend the parties intended "interest" would be payable at four percent on all funds collected by the Initiative from German businesses, and that this rate should be used to calculate the additional "interest" due. Their theory is that the "interest" amount of DM 100 million in the Joint Statement was calculated using the July 2000 German statutory default interest rate, which was four percent. Contending the parties expected legal peace to be achieved within six months after the Joint Statement's signing, they note that applying a four percent rate to DM 5 billion for six months amounts to DM 100 million. As for when "interest" obligations commenced, claimants alternatively contend additional "interest" payments were due from the time of Judge Kram's refusal to grant dismissal until the day the German Foundation Industrial Initiative fully contributed its principal obligation or from the day the Bundestag declared legal peace until the day of final payment.*fn7

The German Foundation Industrial Initiative contends nothing is due beyond the DM 5.1 billion German companies have paid. It contends the DM 100 million was an absolute ceiling on "interest" payments, explaining this amount did not represent actual interest earned on the DM 5 billion. Rather, it was additional funding intended to break an impasse in the allocation negotiations among the victims' representatives. It was labeled "interest" so as not to breach the DM 10 billion cap-a breach that might have upset the fixed expectations of the German companies and the German government on the agreed-to DM 10 billion figure. The German Foundation Industrial Initiative cites a letter from President Bill Clinton to Chancellor Gerhard Schroeder, describing the DM 10 billion as a "ceiling agreed [to] by all participants in this process."

The German Foundation Industrial Initiative contends that putting the merits of the "interest" dispute aside, this case raises a non-justiciable political question. It contends the Joint Statement is a political and diplomatic statement rather than an enforceable contract or settlement agreement and that United States courts have no authority to "rewrite" the document to include new obligations. The German Foundation Industrial Initiative also contends the United States Executive has made a decision, reflected in the Berlin Accords, to commit supervision and administration of the Foundation to diplomacy or to the German government. Moreover, if the United States courts do not refrain from adjudicating the case because it presents a non-justiciable political question, the German Foundation Industrial Initiative contends they should do so under the act of state doctrine or under the doctrine of international comity.

Claimants respond this case is justiciable as a basic contract dispute. They contend the Joint Statement either constitutes or includes a contract. They also contend contractual obligations were created by the German Foundation Industrial Initiative's oral promises to pay DM 5 billion, beginning in mid-December 1999, and by representations before United States judges that if the judges dismissed the cases, the German Foundation Industrial Initiative would fully fund the Foundation.

The United States government addressed the "interest" issue in two letters. The first, relied upon heavily by the German Foundation Industrial Initiative in litigation, was written by the Deputy Secretary of State Richard Armitage in response to an April 18, 2002 letter from Dr. Otto Graf Lambsdorff, the Vice Chairman of the Board of Trustees of the Foundation, also the former German Federal Minister of Finance and the German Federal Chancellor's personal representative to the Board of Trustees of the Foundation. Gross v. German Found. Indus. Initiative (In re Nazi Era Cases Against German Defs. Litig.), 320 F. Supp. 2d 235, 250 (D.N.J. 2004). The undated letter makes two general points: first, the United States' interests are better met through political rather than judicial resolution of this dispute; second, the United States takes no position on whether additional funds are due. The full text of the letter reads:

Dear Otto:

I am writing in response to your letter of April 18, to share with you U.S. views concerning the obligations of German companies with regard to interest payments.

President Bush reaffirmed the United States' support for the German Foundation, "Remembrance, Responsibility and the Future," on the occasion of Chancellor Schroeder's March 2001 visit to Washington. You can be assured that the United States has never wavered from its strong commitment, memorialized in the Executive Agreement of July 17, 2000, to help achieve all-embracing and enduring legal peace for German companies operating in the United States. We will continue to work closely with the Federal Republic of Germany to ensure the success of the Foundation. I also assure you that the interest issue does not affect the U.S. Government's obligation to file statements of interest in individual cases pursuant to the Executive Agreement. We will continue to satisfy that obligation.

We have made many attempts to resolve this issue over the past several months together with your government, the Foundation, and the Foundation Initiative. Our goal has been to ensure that all obligations are met in the course of the Foundation's implementation, while at the same time bearing in mind our shared vision of legal peace. The policy of the United States has been that the proper venues for addressing issues concerning the Foundation are in the Foundation or through U.S.-German diplomacy. Therefore, the U.S. ...

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