Between the Alps and a Hard Place (23 page)

When Bronfman approached Swiss bankers and officials, he had reason to believe that a campaign in the press and pressure from the Clinton administration would be enough to shake a multibillion-dollar sum out of the Swiss government. But it quickly became clear that while such weapons could generate pressure, they could not actually force the Swiss to pay. Thus as early as 1996 Bronfman turned to what had become the routine, profitable way to fleece politically weak corporate enemies in America—the class action lawsuit. A few words are in order on this feature of latter-day American public life.

Until 1966 plaintiffs who wanted to join in a common, class action lawsuit against a company had actually to co-sign the same documents. As a result, participants in such suits were few. Their specific interest made it likely that they, rather than their lawyers, would keep control of the suit and its proceeds. That year, however, a new law allowed some plaintiffs to claim that they were representing all actual or potential plaintiffs similarly affected by the defendant. Industry did not object too strenuously because this allowed a judge to foreclose any suit by any individual deemed to have been a member of the “class” whose representatives the judge had previously recognized. So, in a way, the law allowed defendants to make one-time payments for protection against lawsuits.

Since 1966 any person who wants
not
to be part of a class action suit either because he wishes to preserve his own right to sue or because he does not feel represented by those whom the judge has recognized as representatives of the class must file an affidavit stating why he is not part of the class. But this rarely happens. Hence the “classes” contain huge numbers who wind up with pittances. The parties who gain the most money are the lawyers who bring the suits. The politicians who back them gain power as well as some cash.

This system has put great power in the hands of judges. If the judge finds that any given set of plaintiffs (in practice, their lawyers) represents a class containing millions of people, the lawyers for that class can bring enormous pressure to bear on the defendant to settle—meaning to pay ransom without ever going to trial. The suits are usually brought by public officials, or ostentatiously backed by them. Tearful “victims” make good subjects for the evening news, which begins the pressure on corporate targets. In the lengthy process of fighting the suits
through innumerable legal maneuvers, the defendants stand to gain nothing if they win and to lose much regardless of whether they win or lose, while the plaintiffs' lawyers lose nothing but their time if the suit fails and stand to make fortunes if it succeeds. Then there is the process of “discovery,” by which the defendants' documents are used to generate unfavorable headlines. And of course, as in the Swiss case, the judges themselves put pressure on the defendants to settle by letting them know how they would rule. But the real hammer is that public officials take the presence of the class action suits they themselves are generating, or backing, as an excuse to act as if all the plaintiffs' accusations had been proven. Thus they begin to issue bureaucratic regulations, hold up licenses, and generally harass the defendants. So much for the “stick.” The “carrot” in class action suits is the defendant's expectation that once a settlement is reached with the officially sanctioned claimants, the settlement will preclude other challenges. Indeed, in the multibillion-dollar settlement by state attorneys general against U.S. tobacco companies, the government pledged special protection of the defendants' market share and profits. This guaranteed a steady stream of cash for the plaintiffs while the defendants pass to consumers the cost of buying protection both from government and from competitors. In other words, the process amounts to using the legal system to run a protection racket.

The truth of the accusations is immaterial, above all because those who bring the suits have every intention of preventing them from coming to trial before a jury. In the words of Andrew Cuomo, President Clinton's secretary of housing and urban development, gun manufacturers would be subjected to the “death of a thousand cuts” if they resisted pressure to accept his demands. But, “If all the parties act in good faith we'll stay
at the negotiating table.”
³
Cuomo was referring to a suit he brought supposedly on behalf of public housing tenants alleging that gun manufacturers had been negligent as regards sales and safety devices and hence were responsible for the fact that residents of federal housing projects were several times more likely to be shot than the average American. The suit was backed by President Clinton himself, for whom reduction in gun ownership by Americans has been a goal put out of reach by the public's opposition. But a straightforward trial of the accusations would not have brought Cuomo and Clinton closer to their goal. Any trial would have shown their allegation to be a
non sequitur
, that the manufacturers' behavior followed existing law, and that some public housing tenants' appetite for crack cocaine fed drug traffickers and their violence. Such suits are no more about law than about truth, however; they are about who can do what to whom.

Often, as in a major suit against the makers of women's silicone breast implants, research eventually shows that the accusations are scientifically groundless. Never mind. By then the defendants have “settled,” giving up the right to sue back. And lots of money has changed hands. The real-life “heroine” of the blockbuster movie
Erin Brockovich
made $2 million out of accusations against a California utility for its disposal of a chemical that she claimed caused many diseases. Later it was proved that the chemical in question in the concentrations cited was unlikely to have caused any of them. No matter. The take was $333 million.

This is very big business. Some law firms involved in a massive suit against U.S. tobacco companies in the 1990s netted billion-dollar chunks of the $246 billion settlement spread out over twenty-five years. In Texas alone, the lawyers' take was
$3 billion. These lawyers, collectively known as the “Plaintiff Bar,” then recycle some of their profits to the Democratic politicians who make the suits possible. A tobacco suit lawyer who contributed $70,000 said: “We want to make sure we have a Democratic president, House, and Senate. There is some serious tobacco money being spread around.”
⁴
In 1999 the top five law firms that benefited from the tobacco suits recycled $1.8 million of “soft money” into the Democratic Party. In the 1996 election cycle, trial lawyers contributed some $5 million in soft money to the party and another $5 million in money to specific Democratic candidates. Thus they are one of the party's top constituencies. By comparison, note that Bronfman, his company, and his family contributed some $1.25 million.

Settlements also end typically with the defendants' agreeing with some of the accusations, as well as with the regulations slapped on their activities that the officials sought in the first place but were unable to achieve through the legislative process. In the domestic arena class action suits have become perhaps the principal means by which the Democratic Party and its associated interest groups achieve political goals, penalize their political opponents, and take in money—all things they could not do by passing laws or trying cases.

Since corporations pass the cost of class action lawsuits on to the customers as part of the cost of doing business, such suits end up taxing some citizens for the benefit of others—specifically for the benefit of the Democratic Party and its constituents. Unsurprisingly, the most successful combination in the field of class action suits has been between federal officials—almost always Democrats—and state and local Democratic Party officials, preeminently Democratic state attorneys general as well as lawyers associated with the Democratic Party. During the
late 1990s this practice became so closely identified with the Democratic Party that Republican state attorneys general formed their own association and increasingly refused to take part in class action suits. In the Swiss case the class action suits aimed at taxing a whole foreign country on behalf of a constituency of the U.S. Democratic Party.

Note that class action suits without trial, which some of their practitioners defend as a way of tackling social problems despite a gridlocked political system,
⁵
are essentially private actions made possible by access to public power, both judicial and executive. They cut ordinary voters out of decisions on public policy as well as about taxes.
⁶
They are also actions by public officials acting as private citizens but with all the advantages of public office. The ostensibly voluntary settlements in which these suits end absolve public officials of responsibility for their actions on behalf of the plaintiffs because, after all, the parties themselves “agreed” to the deal. These trials of power are unalloyed by the responsibilities of public office.

For Edgar Bronfman's campaign against Switzerland, the class action suit was the likeliest means of actually ensuring that some Swiss would pay. That is because even in the 1990s there was a limit to the power that the U.S. government, or any government, could exercise over a foreign country without taking official action. All the Swiss government had to do was call the U.S. government's bluff. Was the Clinton administration really ready to explain to Congress and the American people why they ought to treat Switzerland as an enemy? The Swiss don't make very convincing villains. The roughly five hundred American companies that have operations in Switzerland would probably not have cooperated with any of the Clinton administration's unofficial calls for an economic boycott because they would
have been hurt by Swiss retaliation. Could any major American company have been pressured into joining sanctions against the Swiss? Not likely. So, since dragging the American people as a whole into a confrontation with the Swiss was never an option, concrete pressures would be limited to what Democratic officials could do without taking actions that would expose them to public opposition. Through purely discretionary power, Democratic officials could have disinvested state government retirement funds in Swiss banks and companies. Although this was small stuff, it would have exposed these funds' managers to the ire of contributors whose accounts would have been hurt.

As for the Swiss government, however willing it might have been to pay the kind of money that Bronfman demanded, its hands would have been tied by the sort of national referendum that always accompanies major decisions in Switzerland.

Given these difficulties, the campaign could be sure of “closing the deal” only if it could actually cause so much trouble for some Swiss company in the United States that the company would conclude that settling was the cheapest alternative. That is why Bronfman needed a means of pulling the campaign entirely within U.S. borders and into a friendly venue. The class action suit became the weapon of choice. As with domestic class action suits, the amount of the settlement would be just a bit less than what would lead the defendant to go out of business or to fight.

The practical difficulties were disposed of quickly. The WJC had nothing but contempt for the plaintiffs' lawyers who had been working up suits against the Swiss. It nevertheless entered the suits because they were the ideal vehicle. For their part, the plaintiffs' lawyers distrusted the WJC but realized that it could
bring to bear the pressure of public officials who were beyond the reach of the lawyers themselves.

Three sets of lawyers brought the original formal suits. In the eastern district of New York the cases were
Weisshaus et al.
v.
Union Bank of Switzerland et al
. plus four others; the northern district of California saw
Markorivikova et al.
v.
Swiss Bank Corporation et al.
; and
Rosenberg
v.
Swiss National Bank
was filed in the district court for the District of Columbia. Formally, the WJC was only an “organizational endorser,” and as such it signed the settlement agreement. But because it had superior political connections it also negotiated the agreement and had the major influence in the all-important distribution of the proceeds. Moreover, the Swiss side began to pay attention to the suits only when the WJC joined them, because only Bronfman's connections with American politicians could make real trouble for them, and only the same politicians who were behind the trouble could come close to guaranteeing that the first payoff would be the last.

In sum, power in the end game turned out to lie not so much in direct diplomatic support from the Clinton administration, in the press reports generated by Senator Alfonse D'Amato, or in the Eizenstat report. Rather, it lay in the existence of a vulnerable target company within U.S. borders, and of a judge who would accept his plaintiffs' breathtaking claim to be
the
representatives of countless victims of the Holocaust. Above all it depended on Democratic New York City Comptroller Alan G. Hevesi, who could impose upon the company costs far greater than Bronfman's demands.

Hevesi, whose family in Hungary had been decimated in the Holocaust, was a lifelong supporter of Jewish causes. He was also the epitome of Democratic Party careerism. First elected to
the New York State Assembly in 1971 from the borough of Queens, Hevesi became the assembly's Democratic whip in 1978. After unsuccessful attempts to advance in state government, Hevesi was elected city comptroller in 1993 when a corruption scandal forced New York's Democratic Party to drop its first choice, Elizabeth Holtzman. In office, Hevesi sought to build credits within the party and with its donors to become the Democratic nominee to succeed New York City Mayor Rudolph Giuliani. His actions in the Swiss case improved his prospects.

The venue of the WJC's suit against the Swiss banks was not chosen at random. No venue for a class action suit is left to chance. Making sure the right judge is in charge of a case is a high art. Although friendly judges abounded in Washington, D.C., California, and elsewhere, the main effort was in Brooklyn, New York. The city is the world's financial center. It is also a place where nearly all officials somehow depend for their careers on the Democratic Party. Not incidentally, New York has more Jews than Tel Aviv. But why Brooklyn rather than Manhattan? The federal judge in Brooklyn, Edward Korman, was a reliable ally. Korman himself was a Democrat, appointed to the federal bench through the patronage (“senatorial courtesy”) of New York's Democratic senator, Daniel Patrick Moynihan, who followed the priorities of Brooklyn's very tight Democratic organization.