Left to Right: Nicholas Kourides, deputy general counsel; Thomas Russo, general counsel; Michael Leahy, deputy general counsel (Lauren Welles)
A commercial Renaissance on the scale of American International Group takes more than business savvy, financial acumen and marketing insight. It takes a crackerjack in-house legal team like AIG’s Global Legal, Compliance, Regulatory and Government Affairs (GLCR) group.
The legal squad, led by Thomas Russo, executive vice president and general counsel, was instrumental in negotiating more than 90 strategic transactions involving the sales of non-core assets, and guiding six sales of AIG common stock by the U.S. Treasury, resulting in the company fully reimbursing the federal government for its $182 billion bailout in 2008, plus a $22 billion return on the taxpayers’ investment.
At the same time, the AIG New York legal team was presented with an unprecedented demand by Starr International, a company run by former AIG Chief Executive Officer Maurice “Hank” Greenberg. Starr, a major shareholder, insisted that AIG sue the federal government for $50 billion, alleging that aspects of the financial rescue were unconstitutional and unfair to shareholders. That created an unusual dilemma: Should the company refuse to pursue a claim on behalf of its shareholders, or take a slap at the very government that rescued the company?
“We had a situation where Starr sued the government in two different courts for providing assistance to AIG and alleging over $50 billion in damages,” said Michael Leahy, deputy general counsel and head of litigation who resides in the New York office. “It presented the company and its board with a Hobson’s choice: either sue the government and risk significant reputational harm or decline to pursue claims that will potentially result in a massive financial recovery benefiting AIG. And there was no easy way out. Delaware law required that the board consider the demand, irrespective of whether others believed it was something that merited consideration.”
The AIG in-house litigators pulled together a team, including Weil, Gothshal & Manges for the company and Simpson Thacher & Bartlett for the board, and created an independent review process that included detailed written and oral presentations by the parties. The board rejected Starr’s demand, and Starr challenged the decision in court. Judge Thomas Wheeler of the U.S. Court of Federal Claims ultimately sided with AIG, praising the “informed, transparent, rational and exemplary” review process designed by the company’s in-house team.
But the AIG lawyers were not always playing defense.
AIG was equally effective in its pursuit of claims against counter-parties that AIG alleges sold the company fraudulent residential mortgage-backed securities, the devaluation of which was a major cause of AIG’s financial troubles. AIG retained Quinn Emanuel Urquhart & Sullivan as outside counsel and targeted 13 counter- parties.
But rather than filing multiple lawsuits, the company, primarily through the leadership of its in-house team, was able to resolve 12 of the 13 cases through private mediation, resulting in more than $1.3 billion in recoveries to date without the costs of actual litigation.
AIG, an insurance and financial services company, handles property casualty insurance, life insurance and retirement services, aircraft leasing and mortgage insurance. Its legal department includes about 390 attorneys worldwide, 160 of whom are in the New York office.
Russo said in an interview that the legal team’s banner 2013 has to be viewed in the context of a multi-year, coordinated strategy.
“When I came here four years ago, we were most likely looking at selling off the whole company,” Russo said. “Over the last four years, this company has restructured itself and become a very solid company. The real turning point was paying back the U.S. government $182 billion, plus a profit. The legal department was very much in the heart of all that restructuring, and that was pretty special to our stakeholders, including the U.S. government and the Federal Reserve.”
Nicholas Kourides, AIG deputy counsel, heads the global regulatory/Federal Reserve group, the mergers and acquisitions group, as well as investments. Kourides, who resides in the New York office, noted that in 2008, AIG had a significant debt to the government at a time when the market had collapsed and its assets were grossly undervalued.
“We had an obligation to repay the government and had to find the funds to do it,” Kourides said. “The obvious way was to sell various companies. But in October, November, December of 2008, there was no market unless you wanted to give away your valuable assets. So we had to look at a way to restructure.”
AIG wanted to buy itself some time by restructuring and waiting out the financial downturn. But that involved negotiating with the Federal Reserve Bank of New York (FRBNY) and the Board of the Fed, “to see if we could come up with a completely innovative structure,” Kourides said.
American International Group created special purpose vehicles where it put the assets of two of its major holdings. The FRBNY took a preferred interest in those entities while simultaneously reducing a portion of AIG’s credit.
“That was an unprecedented arrangement and one of the most important parts of the restructuring because it gave us time to get to March and April of 2009, when the market started to open up,” Kourides said. “After that, we did about 65 deals over the next three years.”
Russo said AIG was under a lot of pressure to pay back the government.
“A lot of creditors would have said to liquidate, but we figured out a better way to keep that value, wait for the right time, and then utilize it to pay off our debt to the Fed and our obligations to the Treasury,” Russo said.
At the same time that the company was restructuring, it was dealing with a huge book of legacy litigation. Many of the cases were resolved not through litigation, but mediation and in 2013 alone, settlements brought in $1.1 billion.
“This was something that was heavily driven and conceived by the in-house lawyers,” Leahy said. “We obviously had retained counsel to help, especially if anything went to litigation, but this process was designed and executed by the in-house lawyers who put together the mediations and represented the company in the mediations.”
Oftentimes, Leahy said, the AIG lawyers dealt directly with the in-house lawyers of their adversary.
Russo also referred proudly to a new legal operations center established by the GLCR to cut down on legal expenses.
“We have a very, very disciplined way of dealing with outside legal costs in partnership with our claims lines of business and within the legal department,” Russo said. “In 2013, innovative programs have helped us improve legal outcomes and realize hundreds of millions of dollars in savings for AIG and our insureds. We have had reverse auctions with respect to fees, we are having agreements on such things as how many lawyers can work on something, we are setting up our own way of doing e-discovery and we have reduced our e-discovery costs dramatically. We have introduced competition into every aspect.”
All the while, Russo said AIG attorneys have been instrumental in promoting internal values, such as diversity and quality of life programs, and meeting their professional pro bono obligations.
Since the pro bono program was launched in 2012, AIG has established strategic partnerships with several organizations. It joined forces with the Iraqi Refugee Assistance Project to safely resettle individuals displaced by war. It has also partnered with Weil Gotshal and New York Lawyers for the Public Interest to assist parents of special needs children.