Talks aimed at settling claims against German companies allegedly involved in Nazi atrocities got off to a cordial start last week in Washington, with the German side proposing a group, or "umbrella," compensation fund. But a look at the aims of the two sides suggests that the goodwill may soon evaporate.

Big differences exist between the companies -- which are working on the issue in conjunction with the German government -- and the representatives of the Nazis' victims. If the divisions grow, the planned $10 billion purchase of

Bankers Trust

by

Deutsche Bank

could be postponed, and numerous German companies could face difficulties doing business in the U.S.

While each side appears eager to avoid the sort of acrimony that characterized the recent battle for compensation from Swiss banks, which resulted in the formation of a $1.25 billion fund, it is clear from interviews with lawyers and company representatives that tensions could flare over:

  • the size of the umbrella fund,
  • the control of that fund,
  • and the question of participants' possible immunity from other World War II-related lawsuits.

Some of Germany's best-known firms are being targeted by U.S. class-action suits.

Commerzbank

, Deutsche Bank and

Dresdner Bank

are accused of both profiting from and participating in the Nazis' use of slave labor. The suits also claim that the banks accepted and benefited financially from assets looted by

Hitler's

regime, partly through its "Aryanization" of Jewish property.

Deutsche Bank, Germany's largest bank, early this month released documents showing that it had helped finance the construction of the

Auschwitz

concentration camp. Alan Hevesi, New York City's comptroller, said last week that the Deutsche-Bankers Trust merger should not proceed until a settlement had been forged with Holocaust survivors and their heirs.

Also being sued for using slave labor are industrial firms including

DaimlerChrysler

(DCX)

,

Degussa

,

Krupp

and

Volkswagen

.

Deutsche Bank has said it is likely to join the umbrella fund. Officials at Dresdner, Volkswagen, DaimlerChrysler and Krupp were not available for comment on Friday. Commerzbank said on Friday that no fund-participation decision had been made. And Degussa issued a statement saying that it was considering joining the fund.

Comparisons to the Swiss

Hopes for a swift and smoothly negotiated settlement were high after last week's meetings.

Bodo Hombach

, the German chancellery minister, and

Rolf Breuer

, the chief executive of Deutsche Bank, met with representatives of the

World Jewish Congress

and lawyers for the plaintiffs. Some of the discussions were overseen by

Stuart Eizenstat

, the U.S. undersecretary of state.

The Germans' offer to set up a fund, along with Deutsche's Auschwitz disclosure, has been seen as encouraging in some quarters, particularly when compared with the general reluctance of the Swiss banks and government. There are some people on both sides who think the Germans will continue to be conciliatory because, unlike the Swiss, they have long admitted their war guilt and have already paid out large sums in reparations -- through their government.

But interviews with sources on both sides of the dispute revealed considerable differences.

The amount of compensation could well turn out to be a sticking point.

'The liability here is going to be substantially higher than in the Swiss banks settlement.'

The lawyers for the plaintiffs are aiming for a sum significantly above the $1.25 billion won from the Swiss. "The liability here is going to be substantially higher than in the Swiss banks settlement," says Paul Gallagher, attorney with Washington-based

Cohen Milstein Hausfeld & Toll

, which is representing some of the plaintiffs.

"The Swiss amount is not realistic in the German case," says another lawyer closely involved in the talks who requested anonymity. He thinks the German settlement should be some 10 times bigger, at around $10 billion to $12 billion.

This lawyer, who was present at last week's negotiations, said that the Germans had mentioned $1.3 billion as a starting point for the umbrella fund. A much higher sum than $1.3 billion is necessary, plaintiff attorneys argue, because the German companies were deeply implicated in Nazi atrocities and the number of potential claimants is far larger, due to the fact that the Nazis used millions of people as forced or slave laborers.

Possible Obstacles

However, the Germans could view the compensation requests against individual companies as excessive. "There is not yet sufficient information to say whether we will join the fund," says a source at Commerzbank in Frankfurt who asked not to be named. One of the issues the bank wants clarification on is how much money it will be asked to contribute to the fund, the source said.

Control of the fund is already causing some tension. One plaintiff lawyer who did not want to be named is troubled by the fact that the Germans appear to be taking the same approach as the Swiss on this issue.

The Swiss originally wanted to determine the size of the fund and to run it from Switzerland. The World Jewish Congress and the victims' lawyers fought this and secured an arrangement that put the Swiss bank fund under the administration of a New York lawyer appointed by the American judge who presided over the class-action suit.

"The Germans have started out exactly like the Swiss," the lawyer said. "They want to control what happens with the fund."

However, Walter Jakobs, Hombach's press officer, denies that the Germans have already made up their minds on control.

One demand that at least some of the German companies are likely to insist on is protection from more Nazi-era-related lawsuits after a settlement is reached. Degussa, which is being sued for allegedly producing Zyklon B, the gas used to kill millions of people in Nazi concentration camps, said in a statement that it wants "lasting and comprehensive legal peace and security from class actions with a Holocaust background" before joining the fund.

The Swiss banks got this sort of guarantee of protection in their settlement, so it is assumed by some that it can be achieved in the German case. However, a spokeswoman for Degussa, reached on Friday, was not able to say whether the company's statement was demanding immunity from the class-action suits currently filed in the U.S. If Degussa and other companies wanted such immunity, the plaintiff lawyers said, it would be ardently opposed.

Possible Answers

But a tussle over class-action law is not an insurmountable obstacle, says Burt Neuborne, one of the plaintiffs' lawyers.

Neuborne, a law professor at the

New York University School of Law

, says a solution that satisfies both the claimants and the Germans is not that hard to envision. To satisfy the plaintiffs' lawyers, the settlement could involve U.S. judicial oversight. The German's could get a provision that not only eliminates future World War II claims but also protects the companies from any future lawsuits that attempt to use the settlement as a precedent for class-action cases totally unrelated to the war or the Holocaust.

Another plaintiff lawyer, who did not want to be named, says the German side may be deliberately overplaying its class-action fears in an attempt to create a bargaining tool. She says the companies employ U.S. lawyers who know full well that class-action suits can be easily designed to rule out future suits.

A settlement between the governments of Germany and the U.S. theoretically could bypass the U.S. court system. But the

State Department

is unlikely to go along with it -- and it would be faced with opposition from plaintiffs' lawyers and the World Jewish Congress.