Starr International Co. v. Federal Reserve Bank
906 F. Supp. 2d 202
S.D.N.Y.2012Background
- Starr International sues FRBNY asserting fiduciary duties to AIG and its shareholders were breached during the 2008 rescue.
- Allegations center on FRBNY’s September 2008 $85B loan, the later Maiden Lane III vehicle, and ensuing stock transactions (June 2009 reverse split and January 2011 share exchange).
- Starr contends FRBNY controlled AIG, forced disadvantageous CDS wind-downs, and captured residual CDS profits via ML III for the benefit of FRBNY and Treasury.
- AIG and FRBNY executed a complex rescue, including a Trust with 79.9% voting rights in AIG, and a plan to exchange Series C shares for common stock.
- FRBNY moved to dismiss on multiple grounds; the court’s ruling grants the motion in full (claims dismissed with prejudice, save for withdrawn takings claim).
- Court acknowledges related proceedings in the Court of Federal Claims and notes ongoing, but unresolved, derivative considerations by AIG’s board.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did FRBNY control AIG for fiduciary duty purposes? | Starr asserts FRBNY exercised de facto control over AIG at key moments. | FRBNY did not exert actual control; AIG’s independent board acted in good faith under crisis conditions. | No plausible pled control; fiduciary duty claims fail. |
| Should Delaware fiduciary duty law apply or be preempted by federal law? | Delaware law governs fiduciary duties of corporate control in this context. | FRBNY’s status as a federal instrumentality preempts state fiduciary duty claims. | Delaware fiduciary duty law is preempted; preemption applies. |
| Are Starr’s claims regarding ML III, the stock split, and the Series C exchange viable under the control premise? | These actions were tainted by FRBNY control and violated fiduciary duties. | Actions were within statutory authority and integrated with the rescue objective. | Claims dismissed as premised on non-plausible control and preemption. |
| Do derivative claims require demand futility analysis in this context? | Starr exhausted futility by alleging FRBNY control and misdeeds. | Demand futility not adequately pled; board ownership by the Trust complicates this. | Demand futility not dispositive; substantive dismissal on other grounds; derivative claims likewise dismissed. |
| Do Starr’s constitutional claims survive against FRBNY? | Starr asserted takings, due process, and equal protection violations. | Constitutional claims against a federal instrumentality are not cognizable or properly pled. | Constitutional claims dismissed; takings claim withdrawn; remaining claims abandoned. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (Supreme Court 2009) (pleading must state plausible claims, not mere conclusory allegations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (Supreme Court 2007) (pleading must include factual content to render relief plausible)
- First Agric. Nat’l Bank v. State Tax Comm’n, 392 U.S. 339 (U.S. 1968) (federal status and duties of monetary authorities; not easily burdened by state regulation)
- Goodyear Atomic Corp. v. Miller, 486 U.S. 174 (U.S. 1988) (instrumentality preemption and federal surface of regulatory powers)
- Raichle v. Fed. Reserve Bank of N.Y., 34 F.2d 908 (2d Cir. 1930) (early instrumentality-era treatment of FRBNY and federal rescue powers)
- Barr v. Matteo, 360 U.S. 564 (U.S. 1959) (official immunity and protecting officials from vexatious litigation)
- Huntington Towers Ltd. v. Franklin Nat’l Bank, 559 F.2d 868 (2d Cir. 1977) (emergency lending and government actors in crisis contexts)
- Am. Elec. Power Co. v. Connecticut, 131 S. Ct. 2527 (U.S. 2011) (federal common law framework and preemption considerations)