AIG: Greenberg suit not the 'slam dunk' he thinks it is

(AP photo/Mark Lennihan) (AP photo/Mark Lennihan)

AIG’s board did not act “irrationally” in deciding not to join a lawsuit filed by a company controlled by former chairman and CEO Maurice “Hank” Greenberg alleging that the government inappropriately handled its rescue of AIG, the company said in a court filing Friday.

Both AIG and the government in separate motions asked the court to dismiss a lawsuit filed in 2011 by Greenberg and Starr that has already been amended twice.

The suit now alleges that the government owes AIG shareholders $25 billion because it “coerced” AIG’s board to turn over control of AIG to the federal government in September 2008.

In its filing, AIG lawyers said the Greenberg/Starr case is not the “slam dunk” Greenberg and Starr think it is.

The filings were made in the U.S. Court of Claims in Washington, D.C., in a suit filed by Greenberg through Starr International, a company that at one point owned 12.3 percent of AIG.

In the latest filing, AIG lawyers said, “Whatever Starr may think, it was not irrational for AIG’s board to conclude that the claims Starr seeks to bring in AIG’s name are not the ‘slam dunk’ ‘easy winners’ Starr portrays; to the contrary, AIG’s board was advised by its counsel (and experts on constitutional law and financial regulation) that Starr’s likelihood of success is in fact low.”

The suit should also be dismissed “because Starr has not alleged facts showing that AIG’s board wrongfully refused Starr’s demand that AIG bring the claims and has not alleged facts showing that demand was excused.”

Further, the filing said, AIG’s directors also recognized that AIG would face “incalculable harm” to AIG’s corporate brand and image and relationships with shareholders, customers, regulators and elected officials if AIG pursued litigation against the government, and that this harm threatened to nullify the herculean efforts AIG and its employees have made to rebuild AIG’s name and reputation following the events of September 2008 and repay the entire amount AIG owed the Government (plus a profit for the Government).

“Far from being irrational, these concerns were confirmed for the board by the wave of negative publicity triggered by the board’s mere consideration of Starr’s demand,” the filing said.

“Starr may not be concerned about the harm AIG will suffer if AIG pursues claims

against the Government, but the balancing of potential benefits and potential harms of AIG’s pursuit of this litigation is a business judgment for AIG’s board of directors, not Starr,” the filing said.

The filing added that, “AIG’s directors had every right to decide, in the exercise of their business judgment, that suing the government for its rescue of AIG is not the right thing for AIG to do, and that AIG’s interests are better served by focusing on the future and not joining litigation concerning the past.”

Under well-settled Delaware law, “Starr cannot usurp the right of AIG’s board to make this business judgment,” the filing asserts.

Greenberg filed the suit in 2011. Last July, Judge Thomas Wheeler, who is hearing the case, allowed Greenberg, on behalf of all shareholders of AIG at the time, to pursue the case as he had met the minimum standard to further pursue his claims.

In January, AIG’s board decided not to join the lawsuit, and did so in such a way that even in the event Starr/Greenberg won the lawsuit, AIG would not benefit.

The government filing the same day used the decision of AIG’s board not to join the suit as additional reasons for the court to dismiss the case.

The government filing said that “changed material and undisputed facts are fatal to Starr’s direct claims.”

 In particular, the government filing said, Starr admitted in its class certification motion that its direct claims allege harm shared by all AIG shareholders “ratably.”

Separately, the filing said, the U.S. Treasury Department sold all of its equity in AIG. “These undisputed facts demonstrate that Starr’s claims are exclusively derivative, not direct,” the filing said.

In addition, in its second amended complaint, filed in January, Starr asserts for the first time a direct claim of “illegal exaction on behalf of individual AIG shareholders.”

Such a direct claim is legally flawed, however, the government said, “because shareholders never paid anything to or otherwise dealt with the United States.”

The government filing also contends that the Starr/Greenberg suit must be dismissed  because it consists of claims brought derivatively on behalf of AIG.

“Those claims must now be dismissed based upon the AIG board of directors’ rejection of Starr’s demand that AIG prosecute the claims or allow Starr to pursue them.

“That decision is dispositive of the derivative claims as Starr cannot demonstrate that the demand was wrongfully refused or that demand was futile. Starr, therefore, lacks standing to bring those claims on AIG’s behalf,” the government said in its filing.

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