Starr International Company v. United States
2017 U.S. App. LEXIS 8179
| Fed. Cir. | 2017Background
- In Sept. 2008, during the financial crisis, FRBNY made an $85 billion §13(3) loan to AIG; the Credit Agreement granted the Government 79.9% equity in AIG (preferred convertible to common).
- AIG’s Board approved the loan under duress; the preferred stock was placed in a Treasury trust and later (2011) converted to common; the Government sold the common shares in 2011–2012 for a large gain.
- Starr International, a large AIG common shareholder, sued in the Court of Federal Claims asserting direct claims (and some derivative claims) on behalf of itself and certified shareholder classes alleging the equity acquisition was an illegal exaction, a Fifth Amendment taking, and that a 1:20 reverse stock split was structured to allow Government dilution.
- The Claims Court found an illegal exaction under §13(3) but awarded no monetary relief, and it denied relief on the reverse-split claims; Starr appealed and the Government cross-appealed standing and merits issues.
- The Federal Circuit held Starr lacked direct standing to pursue the Equity Claims because those claims are derivative (belong to AIG), vacated the illegal-exaction judgment and remanded for dismissal of Equity Claims; it affirmed denial of relief on the Stock Split Claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Starr has direct standing to pursue Equity Claims (illegal exaction / dilution) | Starr: Government’s equity acquisition directly injured Starr’s economic and voting interests and falls within Delaware’s "dual-nature" direct/derivative exception (or otherwise gives direct federal standing). | Gov’t: Claims are classic derivative claims that belong to AIG; Starr lacks prudential/third-party standing. | Held: Starr lacks direct standing; Equity Claims are derivative and belong to AIG — dismiss. |
| Whether §13(3) acquisition of equity constituted an illegal exaction under the Federal Reserve Act | Starr: §13(3) did not authorize taking equity; the acquisition was unlawful and constitutes an illegal exaction. | Gov’t: §13(3) authorizes emergency lending and permits securing loans to the satisfaction of the Reserve Bank; equity as collateral is within that discretion. | Held: Court did not decide the merits because standing disposes of claim; Claims Court’s illegal-exaction judgment vacated and remanded for dismissal. |
| Whether Starr has direct standing for Stock Split Claims (reverse 1:20 split) | Starr: Reverse split was engineered to change share math so Government could convert preferred to common and avoid shareholder votes, injuring shareholders. | Gov’t: Reverse split’s primary purpose was to avoid NYSE delisting; shareholders (including Starr) voted for the split; conversion could occur regardless. | Held: Trial court’s factual finding that split aimed to avoid delisting was not clearly erroneous; denial of relief affirmed. |
| Whether constitutional (Article III) standing and Tucker Act jurisdiction supported Starr’s claims | Starr assumed Article III requirements satisfied and focused on third-party/derivative tests; argued Fifth Amendment takings and unconstitutional-conditions claims might support relief. | Gov’t (and concurrence): Court of Federal Claims should have resolved Article III standing and Tucker Act money-mandating jurisdiction first; illegal-exaction claims require a money-mandating source; §13(3) is not money-mandating and authorizes equity collateral. | Held: Majority resolved prudential third-party standing under federal/Delaware law and did not reach Article III or Tucker Act jurisdiction; concurrence would dismiss illegal-exaction claim for lack of Tucker Act jurisdiction and also finds Starr lacks Article III standing for a taking. |
Key Cases Cited
- Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031 (Del. 2004) (test for distinguishing direct vs derivative shareholder claims)
- Alleghany Corp. v. Breswick & Co., 353 U.S. 151 (1957) (minority shareholders had standing to challenge dilution where corporation not shown harmed)
- Kowalski v. Tesmer, 543 U.S. 125 (2004) (third‑party standing requires close relationship and hindrance to right-holder)
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (Article III standing standards and burden of proof through litigation stages)
- White Mountain Apache Tribe v. United States, 537 U.S. 465 (2003) (Tucker Act waiver and money‑mandating requirement analysis)
- Norman v. United States, 429 F.3d 1081 (Fed. Cir. 2005) (illegal‑exaction jurisdiction requires statute or provision to be money‑mandating)
- Franchise Tax Bd. of Cal. v. Alcan Aluminium Ltd., 493 U.S. 331 (1990) (shareholder standing rule; shareholders generally cannot sue to enforce corporate rights)
- Gentile v. Rossette, 906 A.2d 91 (Del. 2006) (claims of corporate overpayment are ordinarily derivative)
- Jan’s Helicopter Serv., Inc. v. Fed. Aviation Admin., 525 F.3d 1299 (Fed. Cir. 2008) (Takings Clause is money‑mandating for Tucker Act jurisdiction)