Block on Trump's Asylum Ban Upheld by Supreme Court
The ripples of the financial crisis that spun out of control in the fall of 2008 are now being felt as shareholder suits progress through the judicial system. Maurice "Hank" Greenberg is not only AIG's former CEO, his company, Starr International Co., had a 12% stake in AIG, making it AIG's largest shareholder. Last week, the Second Circuit dealt a blow to one of his two cases in federal court, reports Reuters.
2008 Financial Crisis
In September 2008, AIG alerted the Federal Reserve Bank of New York ("FRBNY") that it may have to file for bankruptcy. To avoid further financial catastrophe, the FRBNY entered a credit agreement with AIG to prevent bankruptcy, effectively giving the federal government an 80% interest in AIG's common stock. Successive financial vehicles and agreements were utilized as rescue deals to prevent AIG from failing.
On November 21, 2011, Starr initiated an action in District Court for the Southern District of New York claiming that FRBNY breached its fiduciary duties to AIG's shareholders, in violation of Delaware law. FRBNY moved to dismiss, and the district court granted the motion; Starr appealed.
State Fiduciary Law vs. Federal Common Law
On appeal, the Second Circuit had to determine whether Delaware state fiduciary law applied, or whether Federal Common law preempted such application, that is, the court had to determine whether FRBNY's private duty to act in the best interest of the shareholders was trumped by FRBNY's duty to "act in the public interest as a fiscal agent of the United States." The court held that federal law preempted state law in this scenario "[b]ecause of the uniquely federal interests at stake," the FRBNY had "to take action in 'unusual and exigent circumstances' when its failure to act 'would adversely affect the economy.'"
Though this case has been dismissed, Starr has a pending action in the Federal Circuit where he has alleged that the AIG bailout was essentially an illegal taking without just compensation. That case is still pending in the courts and is scheduled for trial on September 29, 2014, according to The Wall Street Journal (subscription only). The former Federal Reserve Chairman is expected to be deposed by the end of the month, reports The Wall Street Journal, in accord with a recent Federal Circuit opinion that held that Bernanke could be deposed once he left his post as Reserve Chairman.