Maurice Greenberg's litigation crusade against the U.S. government lives on.
In a ruling Wednesday, U.S. Court of Federal Claims Judge Thomas Wheeler once again refused to dismiss a suit by the former chairman of American International Group Inc., who alleges that the government's takeover of AIG during the financial crisis was an illegal taking. While Wheeler did dismiss Greenberg's derivative claims brought on behalf of AIG, he allowed direct shareholder claims to proceed on behalf of a class that he certified in March. (We previously wrote about this case here and here.)
A similar case that Greenberg brought against the New York Federal Reserve Bank in Manhattan was dismissed last November.
Through his company Starr International Company Inc., Greenberg sued the U.S. in 2011 in Federal Claims Court. Last year, Wheeler refused to dismiss the direct claims and deferred ruling on the derivative claims. AIG kicked off a media frenzy in January when it contemplated joining Greenberg's lawsuit, but decided not to. In the wake of this board decision, the court turned to the derivative claims and the government's renewed motion to dismiss the direct claims.
Greenberg is represented by David Boies of Boies, Schiller & Flexner and John Gardiner of Skadden, Arps, Slate, Meagher & Flom.
In support of the derivative claims, Greenberg's lawyers argued that AIG's board hadn't made an informed and independent decision when it rejected joining the lawsuit. They pointed out that two of the three law firms that advised the directors–Weil Gotshal & Manges and Simpson Thacher & Bartlett–had also advised AIG to take the bailout. In addition, Greenberg's lawyers argued that AIG was improperly influenced by public backlash and threatening comments from government officials.
Wheeler disagreed, writing that it was "eminently rational" for AIG's board to be guided in part by public outcry. And he found no indication that Simpson or Weil had disabling conflicts. AIG's board "conducted itself in an exemplary fashion, with an eye toward thoroughness and transparency," he wrote. The dismissal of the derivative claims does not appear to be a big setback for Greenberg, who can still claim many billions of dollars of damages through the direct claims.
Wheeler did, however, express some qualms about the process surrounding the board's decision not to join Greenberg's lawsuit. He was "troubled" by how one of the U.S. Treasury Department's outsider lawyers at Davis Polk & Wardwell, Frances Bivens, told the board "AIG will be terminated…a decision [to join the suit] could also lead to another wave of congressional investigations, and AIG employees and AIG Board members could be called to testify before Congress," according to the official transcript. Wheeler also wasn't pleased with how Paul Curnin of Simpson Thacher estimated Greenberg's odds of success. (In case you're wondering, it was 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 the evidence would ultimately show," he wrote.
Davis Polk's Bivens told us in an e-mail that there was a "transcription error" in the transcript of the board meeting. As a result, she said, Wheeler interpreted her as saying that "AIG will be terminated" if it joins Greenberg's lawsuit. Bevins told us that, according to her notes and recollection, what she said was "by signing on to the litigation, AIG will be terminating the cooperative relationship it has had" with the U.S. government. Curnin of Simpson Thacher declined to comment.
In a statement, Boies said he was pleased with the court's ruling and looks forward to preparing for trial in the fall of 2014.