The Issues Raised by the Recent Proposal to Reopen the 9/11 Victims Compensation Fund:
Part One in a Two-Part Series of Columns

Last week, Mayor Michael Bloomberg and other New York politicians went to Capitol Hill to ask Congress to reopen the 9/11 Victims Compensation Fund ("VCF") so that it can be used to settle thousands of lawsuits by first responders and workers who cleaned up the World Trade Center site, and who now allege their health has suffered as a result.

This proposal raises difficult legal, political and emotional issues. This column, the first in a two-part series, will examine some of those issues.

Background: The Victims Compensation Fund, Its Purpose, and Its Success

As readers may recall, the VCF, which was created by Congress in the weeks following the 9/11 terrorist attacks, was a compromise between the Republicans and the Democrats, one that reflected two very different goals. On one hand, the Republicans wanted to immunize the airline industry (and later, other possible defendants) from the risk of massive liability arising from thousands of lawsuits by the families of those who died during the attacks. On the other hand, the Democrats insisted that if the families' right to sue were taken away, then the families had to be given something in return.

The VCF and the law which established it, the Air Transportation Safety and System Stabilization Act (ATSSSA), were the results. The ATSSA gave limited immunity to the airlines and others, such as the manufacturers of the airplanes used in the attack and the Port Authority of New York and New Jersey and the City of New York. In exchange, through the VCF, families were given the opportunity to receive compensation that was almost, but not quite as generous as what they might hypothetically have received if they had gone through a lawsuit.

The details of the compromise are worth remembering: The ATSSSA provided limited immunity, in that the defendants could still be sued, but under conditions favorable to them. For example, all suits would have to be brought in the Southern District of New York ("SDNY"), as opposed to state and federal courts around the country. Moreover, if a plaintiff won a suit, the defendants' liability was limited by their insurance coverage, or, in the case of New York City, capped at either $350 million or the City's insurance coverage, whichever was higher.

In exchange, if plaintiffs gave up their right to sue, the VCF provided them with the opportunity for rapid recovery of full economic loss (typically, lost wages) and generous non-economic loss (pain and suffering) without having to cover the expense of a trial or carry the burden of proving fault on the part of the defendants for failing to prevent the attacks. For the families of the very highest earners among the deceased, however, the compensation offered by the VCF was almost certain to be less than what the tort system might have provided, since the recovery for economic loss was "capped" at the very top, and "collateral sources," such as the proceeds of life insurance, were deducted from a VCF award.

Due in no small part to Ken Feinberg, its Special Master, the VCF was a success. Approximately 97% of those eligible chose to opt for recovery through the VCF, not the court system, thus relieving the airlines, the City of New York, and other defendants of a huge cloud of potential liability. (Still, it must be noted that a small number of families and a large number of businesses, whose pure economic losses - for instance, via property damage -- were never eligible for the VCF, are still pursuing lawsuits.)

In the end, just under $6 billion was distributed to the families of 2,880 deceased victims and $1 billion was distributed to 2,680 injury victims. Many people think that, from the government's perspective, the VCF was $7 billion well spent.

The Current Lawsuits By WTC Clean-Up Workers Alleging Respiratory Illness: The First Key Court Decision

It is now obvious that the damage caused by the terrorist attacks on 9/11 extended far beyond the destruction caused on a single day. In the aftermath of the World Trade Center attack, the governments of the New York City and New York State and the federal government made a number of decisions about how to secure the site of the attack, search for survivors and remains, and clean up the site. Those decisions are now being blamed for the alleged respiratory illnesses of over 8000 firemen, police officers, rescue workers, sanitation workers, and construction workers who have filed lawsuits. The lawsuits name a variety of defendants but, for a variety of reasons, the defendant with the greatest exposure is the City of New York.

Two recent court decisions have provided the background for Mayor Bloomberg's recent trip to Washington. The first is the 2005 decision by the U.S. Court of Appeals for the Second Circuit in McNally v. Port Auth. (In re WTC Disaster Site). Previously, Judge Alvin Hellerstein of the U.S. District Court for the Southern District of New York -- the judge to whom all cases under the ATSSSA have been assigned - had held that lawsuits arising from injuries suffered two weeks after the attack do not fall within the ATSSSA; the effect would have been that almost all of the 8000 respiratory cases back to New York state court. But in the McNally decision, the Second Circuit overturned Judge Hellerstein's ruling.

This was a victory for the City of New York, for a number of reasons. First, the City probably felt, correctly, that it could better handle the litigation if it all remained concentrated in a single federal court, before a single judge. Second, the Second Circuit indicated in dicta - that is, language that was not determinative of the result of the decision, but may still be significant -- that the limitations on liability established by the ATSSSA apply to all the respiratory damage suits combined, not to each one of them separately. (Again, as noted above, in the case of the City of New York, that limit is $350 million or their insurance, whichever is higher.)

The plaintiffs had thought that the ATSSSA did not control their suits for a simple reason. The VCF had very specific provisions about who was eligible, and Ken Feinberg, as Special Master, had granted compensation, thus far, only for injuries or death caused on September 11, 2001. Thus, they assumed, as did the City of New York, that the respiratory plaintiffs could not receive compensation under the VCF if they abandoned their lawsuits against the City.

The Second Circuit agreed with this assumption, but pointed out that Congress could have intended to limit the liability of a larger group of victims than the group to whom Congress wanted to offer compensation. Accordingly, even if the respiratory damage plaintiffs could not collect from the VCF, Congress still might have meant to put a cap, through the ATSSSA, on their total damages. (Whether this reasoning is sound is something I will discuss in my next column.)

The Second Key Court Decision on the Post-9/11 Respiratory Damage Lawsuits

The other case that must have been on Bloomberg's mind last week was Judge Hellerstein's October 17, 2006 decision in In re World Trade Ctr. Disaster Site Litig., denying the City's motion to dismiss all the respiratory damages cases on the basis of statutory immunity. That decision was a big loss for the City.

The City had argued that a variety of state and federal statutes--totally separate from the ATSSSA--immunized the City from suit. To give but one example, the New York State Defense Emergency Act ("SDEA"), which dates back to the Cold War, provides a comprehensive response to attacks upon the State of New York, and "makes possible the recovery of the people and the rehabilitation of the economic and social life of the state following any such attack." (The SDEA can be found at N.Y. Unconsol. Law SDEA § 9102-a (McKinney 2006).) Among other things, the SDEA grants immunity to suit to New York State and its municipalities for injuries arising from their response to an attack.

Judge Hellerstein did not deny that the SDEA and other statutes like it pose a formidable hurdle to the respiratory plaintiffs. The SDEA, in particular, seems designed to protect the City from exactly the sort of claims that the respiratory plaintiffs have raised. But Judge Hellerstein held that he could not dismiss all the current 8000 suits and all future suits as a group based on these statutes, as there are limits on their scope and coverage.

The SDEA, for example, applies only to injuries which occurred in the course of a response to an emergency that was taken in good faith by the City. Judge Hellerstein noted that a very large number of injuries suffered by the plaintiffs clearly fall within this category, but he could not be certain that all did. For example, was every truckload of dirt removed from Ground Zero, even a year later, a continuing response to an "emergency"? And if actions were taken that were reckless or knowingly wrongful--such as sending first responders to the site without respirators, despite expert advice to the contrary -- do such actions count as a response to an emergency taken in good faith?

Why Including the Respiratory Damages Suits in the VCF May Be a Good Solution

Mayor Bloomberg understands that Judge Hellerstein's refusal to dismiss en masse all of the respiratory cases exposes the City to a familiar and difficult dynamic: Like any other large defendant facing a mass tort, the City will have to fight each case, one by one. In addition, like other large defendants, the City might be confident that it has the law and the facts on its side, and yet still be fearful that the dynamic of mass tort litigation will drive it into a settlement that is ill-advised and expensive. After all, it seems likely that few New York juries will want to rule against heroic post-9/11 responders, even if the facts and law suggest they must.

This is where the VCF comes in. If the City could get a third party--the federal government--to use the same incentives to convince the respiratory damage plaintiffs to abandon their lawsuits that were used to convince the 9/11 families not to sue, then the City could avoid ever entering into this mass tort dynamic in the first place.

The question is, therefore, whether the respiratory plaintiffs are like 9/11 families, and whether the same reasons that led Congress to create the VCF in 2001 still obtain today. I will examine these issues in my next column.