The Court of Federal Claims has issued its Opinion and Order in the AIG takings case, which we have been following. This is the case brought by "uberlawyer" David Boies. Background on the case, here, including pleadings, and audio of a talk we gave about the case to the ABA. At the early stages of this case, we characterized any claim for $25 billion, even when the plaintiff is represented by a top-shelf guy, as "audacious."
Bottom line: the feds treated AIG badly, very badly. But the measure of liability in a takings case isn't based on bad treatment generally, but on bad treatment economically. And in that arena, “twenty percent of something [is] better than 100 percent of nothing.”
We'll have more after we've had a chance to review the 75-page single-spaced opinion, so complex it needed to have a dramatis personae appended (pages 69-75). But until then, here's some of the choice stuff:
- "The Government’s unduly harsh treatment of AIG in comparison to other institutions seemingly was misguided and had no legitimate purpose, even considering concerns about 'moral hazard.' The question is not whether this treatment was inequitable or unfair, but whether the Government’s actions created a legal right of recovery for AIG’s shareholders." Slip op. at 7 (footnote omitted).
- "In the end, the Achilles’ heel of Starr’s case is that, if not for the Government’s intervention, AIG would have filed for bankruptcy. In a bankruptcy proceeding, AIG’s shareholders would most likely have lost 100 percent of their stock value. DX 2615 (chart showing that equity claimants typically have recovered zero in large U.S. bankruptcies). Particularly in the case of a corporate conglomerate largely composed of insurance subsidiaries, the assets of such subsidiaries would have been seized by state or national governmental authorities to preserve value for insurance policyholders. Davis Polk’s lawyer, Mr. Huebner, testified that it would have been a “very hard landing” for AIG, like cascading champagne glasses where secured creditors are at the top with their glasses filled first, then spilling over to the glasses of other creditors, and finally to the glasses of equity shareholders where there would be nothing left. Huebner, Tr. 5926, 5930-31; see also Offit, Tr. 7370 (In a bankruptcy filing, the shareholders are “last in line” and in most cases their interests are “wiped out.”)." Slip op. at 7.
- "A ruling in Starr’s favor on the illegal exaction claim, finding that the Government’s takeover of AIG was unauthorized, means that Starr’s Fifth Amendment taking claim necessarily must fail. If the Government’s actions were not authorized, there can be no Fifth Amendment taking claim. See Alves v. United States, 133 F.3d 1454, 1456-58 (Fed. Cir. 1998) (Taking must be based on authorized government action); Figueroa v. United States, 57 Fed. Cl. 488, 496 (2003) (If the government action complained of is unauthorized, “plaintiff’s takings claim would fail on that basis.”); see also Short v. United States, 50 F.3d 994, 1000 (Fed. Cir. 1995) (same). Thus, a claim cannot be both an illegal exaction (based upon unauthorized action), and a taking (based upon authorized action)." Slip op. at 8.
- "A popular phrase coined by financial adviser John Studzinski, in counseling AIG’s Board on September 21, 2008 is that “twenty percent of something [is] better than 100 percent of nothing.” Studzinski, Tr. 6936-37. Others, such as Mr. Liddy and Mr. Offit, also embraced this philosophy, believing the top priority was for AIG to live to fight another day. If the Government had done nothing, the shareholders would have been left with 100 percent of nothing. In closing arguments, responding to Starr’s allegation that FRBNY imposed punitive terms on AIG (which it did), Defendant’s counsel Mr. Dintzer observed, “[i]f the Fed had wanted to harm AIG in some way, all it had to do was nothing.” Dintzer, Closing Arg., Tr. 151." Slip op. at 10.
- "As the Court noted during closing arguments, a troubling feature of this outcome is that the Government is able to avoid any damages notwithstanding its plain violations of the Federal Reserve Act. Closing Arg., Tr. 69-70. Any time the Government saves a private enterprise from bankruptcy through an emergency loan, as here, it can essentially impose whatever terms it wishes without fear of reprisal. Simply put, the Government often may ignore the conditions and restrictions of Section 13(3) knowing that it will never be ordered to pay damages. With some reluctance, the Court must leave that question for another day. The end point for this case is that, however harshly or improperly the Government acted in nationalizing AIG, it saved AIG from bankruptcy. Therefore, application of the economic loss doctrine results in damages to the shareholders of zero." Slip op. at 10.
More to come. In the meantime, here's the New York Times' write up (which, as usual, misses most of the details about why the case failed - this is a takings case, and not a tort-ish claim as generally misportrayed by the media).
Starr International Co., Inc. v. United States, No. 11-779C (Fed. Cl. June 15, 2015)
