A federal court judge in Washington has cleared for trial claims by former 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 re-filed his suit last July through Starr International, which owns approximately 13 percent of AIG.

But in his ruling, Court of Claims Judge Thomas Wheeler Wednesday dismissed all derivative claims filed on behalf of AIG.

In January, AIG's board decided not to join the complaint, and did so in such a way that AIG would not benefit even in the event Starr/Greenberg won the lawsuit. AIG also asked that it be dismissed as a derivative plaintiff in a court filing in April.

In the lawsuit, which has been re-filed three times, Starr/Greenberg seek approximately $25 billion on behalf of the two classes of shareholders still involved in the complaint. The amount sought is the value of the 79.9 percent equity interest the government took in Sept. 2008 as its price for providing federal assistance to a troubled AIG.

The suit also seeks an unspecified amount for the anti-dilution rights taken from common shareholders in June 2009.

The suit argues that because AIG's assets exceeded its liabilities at the time the company received assistance, 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 his ruling, Wheeler ordered the government to file an answer to Starr's amended complaint on or before July 16, and added that he will hold a conference with counsel July 9 to set a date for trial.

He reiterated that he had originally denied the government's motion to dismiss the case because “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 also took issue with some circumstances surrounding AIG's decision not to join the complaint. Specifically, he addressed comments from an outside counsel for AIG predicting how the court would rule in the case.

Wheeler said that Paul Curnin, co-chairman of the litigation department of Simpson Thacher & Bartlett LLP “reported the view of the multiple advising attorneys that Starr's claims 'had a low likelihood of success', which he quantified to be around 20 percent, with a 5 percent margin of error.”

He questioned how “anyone could have made a precise assessment of this fact-dependent case without knowing what all of the evidence ultimately will show.”

Wheeler also addressed 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.

Reacting to Wheeler's ruling, David Boies, lawyer for Starr and Greenberg at Schiller & Flexner LLP, says, “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.”

Responding for the government, Timothy Massad, assistant Treasury Secretary for the Office of Financial Stability, says, “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.”

Special Reports /

Judge Clears, Narrows Scope of $25B Greenberg Suit Against Government

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