A federal appellate court has rejected a claim by former American International Group chief executive Maurice “Hank” Greenberg’s Starr International that the Federal Reserve Bank of New York breached its fiduciary duty by bailing out AIG during the height of the financial crisis in 2008.
The U.S. Court of Appeals for the Second Circuit Wednesday affirmed the 2012 decision of Southern District Judge Paul Engelmayer (See Profile) dismissing claims against the reserve bank (NYLJ, Nov. 2, 2012). Starr was AIG’s principal shareholder when the bank offered an $85 billion credit facility to AIG.
The terms of the rescue required AIG to give the federal government about an 80 percent interest in AIG common stock to be held in trust. Starr challenged the Sept. 18, 2008 appointment by the AIG board of Edward Liddy as CEO, claiming Liddy was under the control of the bank rather than acting in the sole interest of AIG shareholders.
But on Wednesday, Second Circuit Judges John Walker Jr. (See Profile), Debra Ann Livingston (See Profile) and Denny Chin (See Profile), in a decision by Walker agreed with Engelmayer, that “because of the uniquely federal interests in stabilizing the national economy, state fiduciary law does not apply to FRBNY’s rescue activities in this case and that it is preempted and replaced by federal common law.”
The appeal in Starr International Company, Inc. v. Federal Reserve Bank of New York, 12-5022-cv, was argued by John Kiernan of Debevoise & Plimpton for the bank and David Boies of Boies, Schiller and Flexner for Starr.
Boies said in a statement that the circuit ruling addressed only a “narrow issue” of state law preemption and did not affect Starr’s still pending constitutional claims in the U.S. Court of Federal Claims in Washington.