Starr International Company, Inc., on Its Behalf and on Behalf of a Class of Others Similarly Situated v. United States
111 Fed. Cl. 459
Fed. Cl.2013Background
- Starr, a large AIG shareholder, sued the United States alleging the 2008 government bailout (including acquisition of 79.9% voting power and related transactions) effected a Fifth Amendment taking and illegal exaction; claims included shareholder-derivative claims (on behalf of AIG) and direct claims (on behalf of Starr and classes).
- When suit began (Nov. 2011) the Government controlled AIG; by Sept. 2012 it had largely divested, and Starr then made a formal demand (Sept. 21, 2012) that AIG pursue the claims; AIG’s Board refused the demand on Jan. 9, 2013 after written and oral submissions.
- AIG’s Board was advised by three law firms (Simpson Thacher, Weil, and Seitz Ross); Seitz Ross was retained as independent counsel and participated throughout the process; the Board considered expert opinions and media/regulatory reputational risk.
- Starr alleged demand futility (reserved in a prior agreement), that the Board was dominated by conflicted counsel, lacked independence (appointed during government control), ignored key merits and valuations, and was improperly pressured by Treasury counsel.
- The Court reviewed the demand process, concluded the Board conducted a reasonable, informed investigation entitled to the business-judgment presumption, dismissed Starr’s derivative claims for lack of standing, but denied the Government’s motion to dismiss Starr’s direct takings and illegal-exaction claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Starr may pursue derivative claims without board approval (demand futility / wrongful refusal) | Starr reserved right to claim futility and argues board wrongfully refused demand | AIG: Starr waived futility by making demand; board refusal entitled to business-judgment presumption | Demand futility rejected as waived; derivative claims dismissed because Starr failed to plead particularized facts creating reasonable doubt about board refusal |
| Whether Board process was compromised by conflicted counsel dominating the investigation | Starr: Simpson/Weil previously advised on challenged transactions and therefore were biased and dominated the process | AIG/Govt: no disabling conflict (wrongdoer is the U.S.), Seitz Ross acted as independent counsel and process was multi-sourced | Court found no disabling conflict and that independent counsel participated sufficiently; conflicted-counsel claim failed |
| Whether Board lacked independence (appointed during government control and subject to pressure) | Starr: directors elected under government control, some were holdovers from 2008, and public/government pressure compromised independence | AIG/Govt: election by prior controlling shareholder does not establish lack of independence; directors owed fiduciary duties to AIG; reputational considerations are valid business factors | Making a demand concedes independence absent particularized allegations; Starr did not allege such facts — board entitled to presumption of independence and good faith |
| Whether Starr’s direct takings / illegal-exaction claims survive dismissal | Starr: harm to shareholders was direct and individualized (loss of voting/economic interest); earlier rulings supported direct standing | Govt: class pleadings admitting pro rata harm and Treasury divestment show claims are derivative or otherwise defective | Court upheld prior ruling that Starr plausibly alleged direct injury and denied dismissal of direct takings/illegal-exaction claims |
Key Cases Cited
- Beam v. Stewart, 845 A.2d 1040 (Del. 2004) (business judgment presumption that directors acted in good faith)
- In re Walt Disney Co. Derivative Litig., 906 A.2d 27 (Del. 2006) (review of board decisions under business judgment rule)
- Grimes v. Donald, 673 A.2d 1207 (Del. 1996) (demand requirement and effect of demand refusal)
- Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90 (U.S. 1991) (demand requirement governed by state law)
- Aronson v. Lewis, 473 A.2d 805 (Del. 1984) (directors manage corporate claims; demand-excusal principles)
- Stepak v. Addison, 20 F.3d 398 (11th Cir. 1994) (conflicted counsel dominating a board’s investigation can rebut business-judgment presumption)
- Levine v. Smith, 591 A.2d 194 (Del. 1991) (making a demand concedes board independence absent particularized allegations)
- Tooley v. Donaldson, 845 A.2d 1031 (Del. 2004) (distinction between direct and derivative claims)
- Rales v. Blasband, 634 A.2d 927 (Del. 1993) (board’s discretion in investigating a demand)