APRIL 19, 2005

Court Revives suit against Vatican Bank;

Claim alleges church held money looted by Croatian Nazis

Bob Egelko

BODY:

A federal appeals court stepped into the controversy over the Catholic Church's relations with Nazi regimes during World War II on Monday, reinstating a lawsuit by Holocaust survivors against the Vatican Bank for allegedly profiting from property looted by the Ustasha puppet government in Croatia.

The suit was filed in 1999 by 24 survivors and heirs, including several from the Bay Area, as well as four organizations with many thousands of members. It was dismissed in 2003 by a federal judge in San Francisco, who said any assessment of the Vatican's wartime actions was a political question beyond the courts' competence. But the Ninth U.S. Circuit Court of Appeals in San Francisco ruled 2-1 Monday that the Vatican Bank's handling of allegedly stolen property could be judged in the legal system.

"The property claims ultimately boil down to whether the Vatican Bank is wrongfully holding assets," said Judge Margaret McKeown in the majority opinion. "Deciding this sort of controversy is exactly what courts do."

She noted that the U.S. State Department has not responded to a formal protest from the Vatican in October 2000 seeking support in getting the suit dismissed. Courts have commonly gone along with State Department requests to dismiss other suits involving foreign relations.

The Ustasha took power in Croatia after the German invasion in 1941 and established death camps in which as many as 700,000 people, mostly Serbs, were killed, according to a U.S. government report cited by the court. A separate State Department report said Ustasha leaders found sanctuary in a papal institution in Rome after the war, with a treasury of over $80 million.

The suit claims much of the money had been stolen from Serbs, Jews, Gypsies, Ukrainians and others under Ustasha domination and was kept in the Vatican Bank, where it was used in part to finance the relocation of Nazi fugitives. The plaintiffs -- who seek class-action status on behalf of all those affected -- want restitution of their losses and any profits gained by the bank.

The likely number of claimants is around 10,000, said plaintiffs' lawyer Jonathan Levy.

McKeown said that the court was letting the suit proceed on narrow grounds -- dismissing broader claims of Vatican collusion in war crimes -- and that the case still faced many hurdles. But dissenting Judge Stephen Trott said the ruling opened the door to broad judicial disruption of U.S. foreign policy.

"What the majority has unintentionally accomplished in embracing this case is nothing less than the creation without legislation of a World Court, an international tribunal with breathtaking and limitless jurisdiction to entertain the world's failures," Trott said.

A lawyer for the Vatican Bank was unavailable for comment. Paul Vallone, attorney for the Order of Friars Minor, a Croatian Franciscan order that was also sued in the case, said the court had eliminated "what we believe to be the primary claims" of collusion with the Ustasha, and that other possible grounds for dismissal had not yet been addressed. He said no decision has been made on whether to appeal.

Plaintiffs' lawyers said the ruling, though far from a resolution of the case, was an important victory.

With the suit reinstated, "we are optimistic that the Vatican Bank will settle this," said attorney Thomas Easton. "If the new pope, whoever he is, would issue an apology, most of our plaintiffs would be totally satisfied."

The suit is one of a number of claims filed against foreign governments, organizations or citizens in recent years under U.S. laws giving courts jurisdiction over World War II financial losses. Results have been mixed.

Foreign policy concerns and postwar treaties have scuttled several suits over wartime slave labor, as well as California's attempt to let Holocaust survivors sue over unpaid insurance policies. But a Southern California woman's suit against Austria for allegedly seizing Nazi-looted artworks was kept alive by the U.S. Supreme Court last year, and last week the same woman and other family members won a $21.9 million verdict against a Swiss bank that allegedly helped the Nazis confiscate their property.E-mail Bob Egelko at begelko@sfchronicle.com