Maurice Hank Greenberg
Maurice Hank Greenberg (Photo by Jin Lee/Getty)

Maurice “Hank” Greenberg, the former chairman of American International Group, has reached a dead end in his company’s $25 billion lawsuit alleging that the Federal Reserve Bank of New York’s takeover of AIG was unlawful.

In a nine-page decision issued on Wednesday, the U.S. Court of Appeals for the Second Circuit dismissed Greenberg’s claims that FRBNY breached fiduciary duties to AIG shareholders under Delaware law. Affirming U.S. District Judge Paul Engelmayer in Manhattan, the appeals court wrote that Greenberg’s breach of fiduciary duty claims are preempted by federal law.

Greenberg’s litigation campaign isn’t over. Wednesday’s ruling does not affect a parallel case Greenberg brought against the U.S. government, alleging the bailout constituted an unconstitutional taking. That case, which also seeks billions of dollars in damages, is pending in the U.S. Court of Federal Claims and survived a motion to dismiss in June 2013.

Greenberg, who remains an AIG shareholder despite his ouster from the company a decade ago, brought both cases in late 2011 through his holding company, Starr International Company Inc. Greenberg is represented by David Boies and Robert Dwyer of Boies, Schiller & Flexner and John Gardiner of Skadden, Arps, Slate, Meagher & Flom.

Because of a three-year statute of limitations, Greenberg was time-barred from arguing that AIG’s bailout itself was unlawful, so he focused on FRBNY’s postbailout conduct. A major bone of contention was FRBNY’s decision to use AIG assets to purchase bonds from Goldman Sachs & Co. and other financial institutions. Greenberg alleged that FRBNY gave Goldman a sweetheart deal, or a “backdoor bailout,” instead of looking out for the interests of AIG shareholders.

Siding with FRBNY’s lawyers at Debevoise & Plimpton, Engelmayer dismissed Greenberg’s fiduciary duty argument on preemption grounds in November 2012. He wrote that imposing state law–based fiduciary duties on FRBNY would undermine its goal of stabilizing the economy.

The Second Circuit agreed with that rationale in Wednesday’s decision, writing that “because of the uniquely federal interests at stake in stabilizing the national economy, state fiduciary duty law does not apply to FRBNY’s rescue activities.”

The Debevoise partners representing FRBNY include John Kiernan and Gary Kubek. The American Lawyer highlighted the firm’s work on the case when the magazine named Debevoise “Litigation Department of the Year” earlier this month.