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 The 2nd U.S. Circuit Court of Appeals in New York said the New York
Fed's authority to address major threats to the economy justified
the dismissal of Delaware breach of fiduciary duty claims by
Greenberg's Starr International Co, which once held a 12 percent AIG
stake.
Writing for a unanimous three-judge panel, Circuit Judge John Walker
said a contrary ruling would compromise the New York Fed's authority
to take action in "unusual and exigent circumstances," including "to
rescue AIG from bankruptcy at the height of the direst financial
crisis in modern times."
He said permitting state law claims such as Greenberg's to go
forward would force the New York Fed to shirk its obligation to act
in the public interest, and instead to act in the best interests of
corporate shareholders, like the AIG shareholders on whose behalf
Starr sued.
"In this case," Walker wrote, "Delaware fiduciary duty law cannot be
applied to FRBNY's rescue activities consistently with adequate
protection of the federal interests at stake in stabilizing the
national economy."
AIG is based in New York but incorporated in Delaware and was once
the world's largest insurer by market value.
Starr had accused the New York Fed of engineering a "backdoor"
bailout for Goldman Sachs Group Inc <GS.N> and other Wall Street
banks at the expense of AIG shareholders, by forcing the insurer to
unwind bets on mortgage debt through hundreds of billions of dollars
of credit default swaps.
The 2nd Circuit did not address whether the New York Fed exceeded
its authority in rescuing AIG, whose $182.3 billion bailout began on
September 16, 2008, one day after Lehman Brothers Holdings Inc went
bankrupt.
CONSTITUTIONAL CASE
Wednesday's decision upheld a November 2012 ruling by U.S. District
Judge Paul Engelmayer in Manhattan, who had endorsed broad central
bank power to address financial crises.
The lawsuit is one of two in which Greenberg, 88, and Starr have
accused the government of shortchanging AIG shareholders out of tens
of billions of dollars.
Greenberg has said the bailout improperly aided banks such as
Goldman, Deutsche Bank AG <DBKGn.DE> and Societe Generale <SOGN.PA>,
and let favored counterparties be repaid in full.
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He has also said the New York Fed improperly let the U.S. Treasury
take a since-divested 79.9 percent AIG stake without allowing a vote
by diluted shareholders.
The second case is before the U.S. Court of Federal Claims in
Washington, D.C., which handles lawsuits seeking money from the
government.
There, Greenberg and Starr called the AIG bailout an illegal taking
that violated the Fifth Amendment of the U.S. Constitution. A trial
is scheduled for September 29.
Starr's lawyer David Boies in a statement said the 2nd Circuit
decision addressed only a "narrow issue" of state law preemption and
did not affect the constitutional claims in the Court of Claims
case. He did not say whether Starr will appeal.
The New York Fed and its lawyer John Kiernan did not immediately
respond to requests for comment.
AIG spokesman Jon Diat declined to comment. The insurer had asked
that Engelmayer's dismissal of Starr's claims be upheld.
Greenberg led AIG for nearly four decades before his 2005 ouster.
The case is Starr International Co v. Federal Reserve Bank of New
York, 2nd U.S. Circuit Court of Appeals, No. 12-5022.
(Reporting by Jonathan Stempel in New
York; editing by Jeffrey Benkoe and Cynthia Osterman)
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