NEW YORK (Reuters) – On Wednesday, as Dealbook reported in a terrific story Monday night, AIG's 12 board members will hear an extraordinary presentation.
Starr International Company, which is controlled by former AIG chief Hank Greenberg, will ask the company to join a $25 billion case in federal claims court that accuses the United States of wrongfully seizing control of AIG from shareholders when the government took control of the teetering insurer in September 2008. Then, according to a court filing in which AIG described the process, the government and the Federal Reserve Bank of New York will counter Starr's arguments and urge the board to forego litigating against its federal saviors (who have since been paid back in full). By the end of the month, the board will decide whether to take on Starr's derivative claims against the government, risking accusations of ingratitude, or to vote against pursuing the litigation, risking possible shareholder derivative claims that it has breached its own fiduciary duties.
Starr hasn't made any threats of breach-of-duty claims against AIG's board, and its lawyers at Boies, Schiller & Flexner declined comment through a firm representative. So far, AIG's conduct in Starr's litigation against the federal government has actually helped Greenberg's company, as you'll see below. But as the AIG board deliberates, directors will be wary of the former chairman's well-exercised trigger finger for lawsuits.
Starr's campaign against the feds began in November 2011 as two different cases: the federal claims court complaint against the United States (asserting both direct shareholder claims and derivative claims on behalf of AIG for the government's supposedly unconstitutional conduct) and a shareholder derivative complaint in federal court in Manhattan against the Federal Reserve Bank of New York, which was the instrument of the $182 billion federal bailout of AIG. In a landmark (and cogently written) ruling last November, U.S. District Judge Paul Engelmayer dismissed the entire case in Manhattan federal court. The judge said (and here I'm summarizing an 89-page ruling) that Starr hadn't adequately established the Federal Reserve's fiduciary duty to AIG and its shareholders, and even if such a duty existed, AIG's claims under Delaware law would be pre-empted by the federal government's larger responsibility to stabilize the national economy.
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