Starr International Co., Inc. v. Federal Reserve Bank of New York
2014 U.S. App. LEXIS 1770
| 2d Cir. | 2014Background
- Starr appeals district court dismissal of claims against FRBNY for breach of fiduciary duty in the AIG rescue during the 2008 financial crisis.
- District court held Delaware fiduciary duty law is preempted and replaced by federal common law due to uniquely federal interests.
- AIG faced liquidity stress from collateral calls on credit default swaps; Lehman collapse and rating downgrades worsened liquidity.
- FRBNY extended an $85 billion loan facility and required AIG to transfer ~80% of its equity to a Trust controlled by the Treasury; Liddy became CEO.
- Maiden Lane III purchased $62 billion in assets from AIG; Trust structure and stock actions (including a 20:1 reverse split) raised fiduciary questions.
- Starr asserted direct and derivative breaches and aiding-and-abetting claims; constitutional claims were not at issue; Starr timely appealed.
- Appellate court affirms district court’s Rule 12(b)(6) dismissal based on federal preemption and replacement of state fiduciary law by federal common law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Delaware fiduciary duty law applies to FRBNY’s rescue actions. | Starr claims FRBNY owed fiduciary duties under Delaware law. | FRBNY argues state law is preempted due to uniquely federal interests. | Preempted; federal common law governs. |
| Whether applying state fiduciary duties would conflict with FRBNY’s public duties. | Starr suggests Delaware duties would constrain FRBNY’s public mission. | State duties would create conflicts with FRBNY’s fiscal-agent role. | State fiduciary law displaced by federal common law; no plausible claim. |
Key Cases Cited
- Boyle v. United Techs. Corp., 487 U.S. 500 (1988) (federal common law for uniquely federal interests; displacement of state law)
- New York v. National Service Indus., Inc., 460 F.3d 201 (2d Cir. 2006) (test for displacement of state law by federal policy interests)
- Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677 (2006) (federal interest preemption in health-insurance context)
- McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) (states cannot impede federal instrumentalities)
- United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979) (federal policy displaces state law where necessary)
- United States v. Standard Oil Co., 332 U.S. 301 (1947) (context for federal preemption and national interest)
- Fasano v. Fed. Reserve Bank of N.Y., 457 F.3d 274 (3d Cir. 2006) (recognition of FRBNY as federal instrumentality and limits of state law)
- Fed. Reserve Bank of Boston v. Comm’r of Corps. & Taxation of the Commonwealth of Mass., 499 F.2d 60 (1st Cir. 1974) (instrumentalities’ operations and public purposes support preemption)