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Federal Judge Agrees AIG Failed to Prove Breach of Trust by Greenberg
New York Lawyer
September 01, 2009
A federal judge has agreed with a jury's advisory verdict that a private investment firm headed by former American International Group Chairman and CEO Maurice "Hank" Greenberg did not commit a breach of trust against the insurance giant.
Southern District Judge Jed S. Rakoff said an alleged oral contract by Starr International Company Inc. to hold in trust AIG stock for AIG's benefit was unenforceable.
"'Put it in writing' is the law's way of saying 'get serious,'" the judge wrote in a 59-page opinion issued Monday in Starr International Group v. American International Group Inc. (pdf), 05 Civ. 6283.
While AIG sought to enforce an obligation that could have cost SICO as much as $4.3 billion, Rakoff said "the law will not recognize such an oral trust unless the evidence of its creation is unequivocal." This, he said, "is a burden that AIG has not come close to shouldering."
Theodore Wells Jr. of Paul, Weiss, Rifkind, Wharton & Garrison had tried in vain to convince a jury that SICO and Greenberg were guilty of selling stock they were supposed to be preserving for executive compensation at AIG.
But in addition to advising that there was no breach of trust, the jury on July 7 issued its own, final verdict rejecting AIG's conversion claim.
Greenberg, who testified at the trial for SICO, and its counsel, David Boies of Boies Schiller & Flexner, claimed the stock was not being held for the benefit of AIG and that SICO had the freedom to sell the shares at any point.
"In the end, it appears that the case was not, in the jury's eyes, a close one," Rakoff wrote Monday, noting that it took the panel less than one day of deliberations to reach its verdict.
Greenberg was ousted as head of the giant insurer in March 2005 amid an investigation of accounting irregularities.
Wells, during his opening argument in the three-week trial, said Greenberg was angry for being "kicked out" of the company he led to international prominence and that the "totally improper" stock sales by SICO were a story of "anger, betrayal and a coverup."
But Boies told the jury during openings that the issue "is not whether or not there was a trust," because there was a trust created in 1970 during a corporate reorganization and that trust was created by a vote of SICO shareholders.
The real question, he told the jury, was "who was the beneficiary of that trust?" The answer, Boies promised and ultimately proved, was that AIG was not the beneficiary of the trust: SICO was.
On Monday, Rakoff said AIG "relied heavily on adverse inferences it asked the judge and jury to draw from what it argued was Hank Greenberg's false testimony, suggesting that Greenberg lied to cover up the express trust AIG claimed he had created."
While the judge said it was his "distinct impression" that the jury did not believe all of Greenberg's testimony, he said they nonetheless found in his favor.
Rakoff agreed that, on the subject of Greenberg's credibility, "his testimony and the truth did not always converge; but the inaccuracies were not as material as AIG argued nor warranted the sweeping adverse inferences AIG hypothesized."
Some of the inaccuracies, he said, seemed to be the result of mere confusion, but not all.
"At other times it was the product of prevarication, but not to the point of making a material difference in the court's overall assessment of the evidence," the judge said.
He found it was "SICO, not AIG that took many of the requisite actions that governed the use of the Acquired Stock."
"Even more damaging," the judge wrote, "is the fact that AIG produced no witnesses who testified that a trust in favor of AIG existed."
On the contrary, he said, "every witness familiar with the 1970 reorganization, AIG's compensation programs, or SICO or AIG's finances who was asked about the existence of such a trust denied any knowledge of one."
