Filed Under:Your Practice, Regulatory

Greenberg suit cleared for further action

A federal court judge in Washington has cleared for trial claims by former AIG CEO Maurice “Hank” Greenberg that the "federal government’s methodology in aiding a troubled American International Group amounted to an attempt to ‘steal the business.'" Greenberg refiled his suit last July through Starr International, which owns approximately 13 percent of AIG.

In his ruling Wednesday, Court of Claims Judge Thomas Wheeler dismissed all “derivative claims,” i.e. those filed on behalf of AIG. That was because, 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. AIG asked that it be dismissed as a derivative plaintiff in a court filing in April.

Jon Diat, a spokesman for AIG, noted that the decision “firmly upholds AIG board’s business judgment and the process [the board] followed.” Adding that, "We are pleased and believe the decision speaks for itself."

In his decision, Wheeler acknowledged his pique that a lawyer for AIG had dared predict how he would ultimately rule as a contributing factor in Wednesday’s decision to clear the lawsuit for trial.

Wheeler also acknowledged that another contributing factor in his decision was an allegation that a Treasury official “made threatening statements to AIG’s board members when the board was fulfilling its legal obligation to consider entry into this lawsuit.” Wheeler said the “court is troubled that counsel for the Treasury Department (the defendant agency), made the statements.” He further cited the “media frenzy” in reaction to the proposition that AIG would join this lawsuit against the government.

He said media reports “contain inflammatory quotations from a number of public figures and elected officials who apparently lacked any understanding that AIG was required to consider entry into the lawsuit under the demand process of Delaware law. “It is unfortunate that AIG’s board members had to deal with this misplaced pressure and public outcry,” Wheeler said.

He reiterated that he had originally denied the government’s motion to dismiss the case by holding that, “assuming the truth of Starr’s allegations, Starr may maintain a direct claim for the taking of its equity and voting interests, because the Government extracted from the public shareholders, and redistributed to itself, a portion of the economic value and voting power embodied in the minority interest."

The judge ordered the government to file an answer to Starr’s amended complaint on or before July 16, and that he will hold a conference with counsel July 9 at which time he will set a date for trial.

David Boies, Starr and Greenberg’s lawyer at Schiller & Flexner LLP, said, “We are pleased that the Court of Federal Claims has denied the motion of the U.S. and permitted Starr International to pursue the claims of two classes of AIG shareholders for tens of billions of dollars that the Government took without just compensation and/or illegally exacted in 2008 and 2009."

"We look forward to continuing discovery in this action and getting ready for trial in the fall of 2014,” Boies added.

Responding for the government, Timothy Massad, assistant Treasury Secretary for the Office of Financial Stability, said that, "While we are disappointed that the court did not dismiss the entire case—as the New York court did with the related lawsuit last November—we are pleased that the court dismissed much of it. We believe that the remaining claims against the Government have no merit, and will continue to defend the case vigorously."

In the lawsuit, Starr/Greenberg seeks approximately $25 billion on behalf of the two classes of shareholders still involved in the lawsuit, the value of the 79.9 percent equity interest allegedly taken in Sept. 2008 (which AIG’s 10-Q contemporaneously valued at $23 billion) and an unspecified amount for the anti-dilution rights taken from common shareholders in June 2009. The suit also cites the original 14.5 percent interest rate on the loans as onerous and depriving AIG shareholders of their due process and equal protection rights.

The suit argues that, because AIG’s assets exceeded its liabilities, the government should have provided it with enough liquidity to meet the demands of creditors—as it did for other troubled financial companies in 2007 and 2009—and not demanded control of 79.9 percent of its stock as the price for aid.

In voicing concern about AIG's outside counsel predicting the likelihood of Starr/Greenberg’s success in the lawsuit, Wheeler was talking about Paul Curnin, co-chairman of the litigation department of Simpson Thacher & Bartlett LLP. Curnin was among a number of lawyers asked in January to advise AIG’s’ board on whether the company should join the lawsuit.

Wheeler said that “Curnin reported the view of the multiple advising attorneys that Starr’s claims ‘had a low likelihood of success,' which he quantified to be around twenty percent, with a five percent margin of error. “Although professionals surely can opine on the pros and cons of a lawsuit, the court cannot see how anyone could have made a precise assessment of this fact-dependent case without knowing what all of the evidence ultimately will show.

“To be sure, the Court’s ultimate disposition of this case will be based upon the evidence admitted at trial, not upon someone else’s assessment of the merits,” Wheeler said. “The granting of AIG’s motion does not mean that the court endorses any of the information presented to AIG’s board."

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