STARR INTERNATIONAL COMPANY, INC., IN ITS OWN RIGHT AND ON BEHALF OF TWO CLASSES OF OTHERS SIMILARLY SITUATED v. UNITED STATES; AMERICAN INTERNATIONAL GROUP, INC.
2015-5103, 2015-5133
United States Court of Appeals for the Federal Circuit
May 9, 2017
DAVID BOIES, Boies, Schiller & Flexner, LLP, Armonk, NY, argued for plaintiff-appellant. Also represented by ANTHONY T. KRONMAN; ROBERT J. DWYER, ALANNA C. RUTHERFORD, New York, NY; AMY J. MAUSER, Washington, DC; GREGORY S. BAILEY, RYAN STOLL, Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, IL; JOHN GARDINER, New York, NY; CHARLES FRIED, Cambridge, MA.
JOHN S. KIERNAN, Debevoise & Plimpton LLP, New York, NY, for amicus curiae Federal Reserve Bank of New York. Also represented by LINDSAY C. CORNACCHIA, NICHOLAS C. TOMPKINS; SHARI D. LEVENTHAL, MEGHAN MCCURDY, Federal Reserve Bank of New York, New York, NY.
DENNIS M. KELLEHER, Better Markets, Inc., Washington, DC, for amicus curiae Better Markets, Inc.
Before PROST, Chief Judge, REYNA and WALLACH, Circuit Judges.
Opinion for the court filed by Chief Judge PROST.
Opinion concurring-in-part and concurring-in-the-result filed by Circuit Judge WALLACH.
PROST, Chief Judge.
Around September 2008, in the midst of one of the worst financial crises of the last century, American International Group, Inc. (“AIG“) was on the brink of bankruptcy and sought emergency financing. The Federal Reserve Bank of New York (“FRBNY“) granted AIG an $85 billion loan, the largest such loan to date. Central to this case, the United States (“Government“) received a majority stake in AIG‘s equity under the loan, which the Government eventually converted into common stock and sold. One of AIG‘s largest shareholders, Starr International Co., Inc. (“Starr“), filed this suit alleging that the Government‘s acquisition of AIG equity and subsequent actions relating to a reverse stock split were unlawful. The U.S. Court of Federal Claims (“Claims Court“) held a trial on Starr‘s direct claims, for which Starr sought over $20 billion in relief on behalf of itself and other shareholders. The Claims Court ultimately held that the Government‘s acquisition of AIG equity constituted an illegal exaction in violation of
We conclude that Starr and the shareholders represented by Starr lack standing to pursue the equity-acquisition claims directly, as those claims belong exclusively to AIG. Because this determination disposes of the equity-acquisition claims, the other issues regarding the merits of those claims are rendered moot. We also conclude that the Claims Court did not err in denying relief for Starr‘s reverse-stock-split claims.
We therefore vacate the Claims Court‘s judgment that the Government committed an illegal exaction and remand with instructions to dismiss the equity-acquisition claims that seek direct relief. We affirm the judgment as to the denial of direct relief for the reverse-stock-split claims.
I. BACKGROUND1
The 2008 financial crisis exposed many of the major financial institutions in the United States to substantial liquidity risks. AIG was no exception.
A
AIG is a publicly traded corporation with various insurance and financial services businesses. Around 2007, it experienced a deteriorating financial condition due in part to a collapse of the housing market. Leading up to the 2008 financial crisis, AIG had become a major participant in various derivatives markets, including by guaranteeing a portfolio of credit-default-swaps (“CDSs“) sold by one of its subsidiaries. These CDSs functioned like insurance policies for counterparties holding debt obligations, which in turn were often backed by subprime mortgages. When the value of mortgage-related assets declined during the 2008 financial crisis, counterparties demanded that AIG post additional cash collateral pursuant to terms of the CDSs or, in the event of a default, pay any remaining positions. By September 2008, AIG was also facing other financial challenges, including increased fund returns from securities lending, a significant decline in its stock price, the prospect of downgraded credit ratings, and difficulty obtaining additional funding. These factors contributed to mounting stress on AIG‘s liquidity.
The situation came to a head on Friday, September 12, 2008, when AIG informed the FRBNY that it had urgent liquidity needs estimated between $13 billion-$18 billion.2 Over the weekend of September 13-14, AIG‘s liquidity needs ballooned to $45 billion, then to over $75 billion, threatening its very survival. On the morning of Monday, September 15, another major financial institution, Lehman Brothers, filed for bankruptcy, which made obtaining private funding even more difficult.
By the following day, the FRBNY—realizing that an AIG bankruptcy could have destabilizing consequences on other financial institutions and the economy—invoked
secure adequate credit accommodations from other banking institutions.”3
The Federal Reserve Board quickly approved a Term Sheet for an $85 billion loan under
That same day, September 16, AIG‘s Board of Directors (“AIG Board“) met to consider the proposed Term Sheet. They discussed the pros and cons of accepting the loan, including the equity term. AIG‘s Chief Executive Officer (“CEO“) at the time, Robert Willumstad, also conveyed to them “that the Secretary of the Treasury had informed him that as a condition to the [loan, he] would be replaced as [CEO].” J.A. 200031. According to the
meeting minutes, all but one of the Directors expressed the view “that despite the unfavorable terms of the [loan, it] was the better alternative to bankruptcy for [AIG].” J.A. 200038. Over the single dissenting Director, the Board voted to approve the Term Sheet. The FRBNY then advanced money to AIG for its immediate liquidity needs, and Mr. Willumstad was replaced as CEO.
On September 22, 2008, AIG entered into a Credit Agreement memorializing the terms of the loan. The Agreement specified that the Government, through “a new trust established for the benefit of the United States Treasury” (“the Trust“), would receive the 79.9% equity in the form of preferred stock that would be convertible into common stock. J.A. 200212. This was the agreement through which the Government acquired AIG equity.4 The recited consideration for the equity was “$500,000 plus the lending commitment of [the FRBNY].” J.A. 200212. AIG issued the convertible preferred stock and placed it in the Trust in 2009.5
The $85 billion loan was, and remains, the largest
At this time, AIG‘s common stock was listed on the New York Stock Exchange (“NYSE“). In the latter part of 2008, AIG‘s stock sometimes dipped below $5.00 per share, prompting the NYSE to remind AIG that the NYSE had a minimum share-price requirement of $1.00 per share. The NYSE advised that it would delist stocks that failed to meet the $1.00-per-share requirement after June 30, 2009. By early 2009, AIG‘s common stock was occasionally closing below $1.00 per share and was therefore at risk of being delisted.
On June 30, 2009, the same day as the NYSE deadline, AIG held an annual shareholder meeting at which shareholders voted on a number of proposals to amend AIG‘s Restated Certificate of Incorporation. In relevant part, the AIG Board advised shareholders to approve two proposed amendments that would alter the pool of AIG common stock. The first proposed amendment required approval by a majority of the common shareholders
The second proposed amendment was subject to a wider shareholder vote and would implement a reverse stock split at a ratio of 1:20 but would only affect the three billion issued shares out of the five billion authorized shares of common stock. The proxy statement asserted that “[t]he primary purpose of the reverse stock split [was] to increase the per share trading price of AIG Common Stock” and, accordingly, “help ensure the continued listing of AIG Common Stock on the NYSE.” J.A. 201113.
The first proposed amendment, to increase the total amount of authorized common stock, failed to pass. But a majority of shareholders, including Starr, approved the second proposed amendment toward a 1:20 reverse stock split of the issued common stock. As a result, the amount of AIG issued common stock decreased from approximately three billion shares to approximately 150 million shares, while the total amount of authorized common stock remained at five billion shares. This solution avoided NYSE delisting. It also made available enough unissued shares of common stock (approximately 4.85 billion shares, i.e., over 79.9% of AIG authorized common stock) to allow the Government to convert all of its preferred stock in AIG to common stock.
More than a year later, in 2011, the Government did just that, converting its 79.9% equity from preferred stock to more than 562 million shares of AIG common stock as part of a restructuring agreement with AIG. Then, between May 2011 and December 2012, the Government sold all of those shares of common stock for a gain of at least $17.6 billion.
AIG ultimately repaid the $85 billion loan plus around $6.7 billion in interest and fees, and remains a publicly traded corporation today.
B
Starr is a privately held Panama corporation with its principal place of business in Switzerland and was one of the largest shareholders of AIG common stock at all times relevant to this case. Its Chairman and controlling shareholder is Maurice Greenberg, who served as CEO of AIG until 2005.
In 2011, Starr filed the underlying suit in the Claims Court against the Government.6 Starr recognizes that the
Starr asserted claims directly—on behalf of itself and similarly situated shareholders—for individual relief. It also asserted claims derivatively, on behalf of AIG, for relief that would flow to the corporation.
United States (“Starr III“), 109 Fed. Cl. 628, 636-37 (2013).
In 2013, the trial court dismissed Starr‘s derivative claims after the AIG Board refused Starr‘s demand to pursue litigation.8 Starr Int‘l Co. v. United States (“Starr IV“), 111 Fed. Cl. 459, 480 (2013). Starr does not appeal the dismissal of those derivative claims. Our discussion therefore focuses on the claims that Starr, on behalf of itself and the two shareholder classes, continues to press for direct relief.
1
There are two sets of claims corresponding to the various events surrounding the
With respect to the Equity Claims, Starr maintains that the Government‘s acquisition of 79.9% of AIG‘s equity was an illegal exaction because the
convert all of its preferred stock into common stock. The Government allegedly foresaw that the proposed amendment to increase the total amount of authorized AIG common stock (including unissued shares) would not pass a common shareholder vote—a vote that the Government did not control—so it “deliberately engineered” the reverse stock split to guarantee a decrease in the number of issued shares, which would result in a corresponding increase in the proportion of unissued shares to over 79.9%. J.A. 502327. Starr alleges that this scheme completed the Government‘s taking of shareholder interests and “deprive[d] [Starr] of its right to block further dilution of its interests in AIG.” Appellant‘s Opening Br. 58.10
2
The Claims Court allowed Starr to proceed to trial on the claims that Starr had asserted directly. In relevant part, the court determined at the pleading stage that “Starr has standing to challenge the FRBNY‘s compliance with
On the Government‘s motion, the Claims Court dismissed Starr‘s unconstitutional conditions claim.11 Starr II, 106 Fed. Cl. at 83. The Claims Court then proceeded to a thirty-seven-day trial on the remaining claims, all of which sought direct shareholder relief.
Following trial, the court held that the Government‘s acquisition of AIG equity was not permitted under the
Starr and the Government cross-appeal from the judgment of the Claims Court. We have jurisdiction over these appeals pursuant to
II. DISCUSSION
Starr argues with respect to the Equity Claims that the trial court erred in denying monetary relief for an illegal exaction and, alternatively, in dismissing its unconstitutional conditions claim.13 Starr separately argues that the trial court erred in denying relief for its Stock Split Claims.
The Government contends that Starr lacks standing to pursue the Equity Claims on behalf of itself and other shareholders because those claims are exclusively derivative and belong to AIG. Alternatively, the Government asks us to reverse the trial court‘s conclusion that the equity acquisition was an illegal exaction vis-à-vis Starr.
We review the Claims Court‘s conclusions of law, including that of standing, de novo. Norman v. United States, 429 F.3d 1081, 1087 (Fed. Cir. 2005). We review any factual findings, including those underlying the standing analysis and the denial of relief for the Stock Split Claims, for clear error. Id.; Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009).
Before we can address the merits of Starr‘s claims, we consider whether Starr has standing to pursue those claims directly, on behalf of itself and other shareholders.
See Castle v. United States, 301 F.3d 1328, 1337 (Fed. Cir. 2002) (“Standing is a threshold jurisdictional issue ... and therefore may be decided without addressing the merits of a determination.“). For the reasons below, we conclude that it does not have direct standing to pursue the Equity Claims. Accordingly, we have no occasion in this case to address whether the Government‘s acquisition of AIG equity was an illegal exaction; what damages, if any, would attach; and whether the unconstitutional conditions doctrine has any applicability in this case.14 We do, however, address the merits of Starr‘s appeal with respect to the Stock Split Claims.15
“Federal courts are not courts of general jurisdiction; they have only the power that is authorized by Article III of the Constitution and the statutes enacted by Congress pursuant thereto.” Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). In keeping with this principle, the doctrine of standing “serv[es] to identify those disputes which are appropriately resolved through the judicial process.” Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). The Claims Court, “though an Article I court, applies the same standing requirements enforced by other federal courts created under Article III.” Anderson v. United States, 344 F.3d 1343, 1350 n.1 (Fed. Cir. 2003) (citation omitted). The plaintiff bears the burden of showing standing, and because standing is “an indispensable part of the plaintiff‘s case, each element must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992).
For a party to have standing, it must satisfy constitutional requirements and also demonstrate that it is not raising a third party‘s legal rights. Kowalski v. Tesmer, 543 U.S. 125, 128-29 (2004). Unless otherwise noted below, we assume arguendo as the parties do—that Starr has satisfied the requirements of constitutional standing derived from Article III, namely: (1) an “actual or imminent” injury-in-fact that is “concrete and particu- larized“; (2) a “causal connection between the injury and the conduct complained of“; and (3) “likely[] ... redress[ability] by a favorable decision.” Lujan, 504 U.S. at 560-61 (internal quotation marks omitted). We focus, instead, on the third-party standing requirement. The Concurrence faults us for not addressing constitutional standing first, but “[i]t is hardly novel for a federal court to choose among threshold grounds for denying audience to a case on the merits.”16 Ruhrgas, 526 U.S. at 585; see, e.g., Kowalski, 543 U.S. at 129 (assuming Article III standing to “address the alternative threshold question” of third-party standing).
The Supreme Court has historically referred to the principle of third-party standing as a “prudential” principle: “that a party ‘generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.‘”17 Kowalski,
543 U.S. at 129 (quoting Warth v. Seldin, 422 U.S. 490, 499 (1975)); see also Franchise Tax Bd. of Cal. v. Alcan Aluminum Ltd., 493 U.S. 331, 336 (1990) (calling the limitation a “longstanding equitable restriction“). This principle of third-party standing “limit[s] access to the federal courts to those litigants best suited to assert a particular claim.”18 Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 100 (1979). It also recognizes that, as is the case here, the third-party right-holder may not in fact wish to assert the claim in question. See Singleton v. Wulff, 428 U.S. 106, 116 (1976) (distinguishing from a third-party‘s inability to assert a claim).
Starr submits that it satisfies the third-party standing principle because the Government‘s acquisition of equity harmed Starr‘s personal “economic and voting interests in AIG,” independent of any harm to AIG. Appellant‘s Resp. & Reply Br. 24. The Government submits that this case presents “classic derivative claim[s]” that belong exclusively to AIG. Oral Argument 33:13-33:24.
Because Starr presses the Equity Claims under federal law, federal law dictates whether Starr has direct standing. Cf. Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 97 (1991) (“[A]ny common law rule necessary to effectuate a private cause of action ... is necessarily federal in character.“); see also Wright & Miller et al., Federal Practice & Procedure § 1821 (“[I]n suits in which the
rights being sued upon stem
In the context of shareholder actions, both federal law and Delaware law distinguish between derivative and direct actions based on whether the corporation or the shareholder, respectively, has a direct interest in the cause of action. Under federal law, the shareholder standing rule “generally prohibits shareholders from initiating actions to enforce the rights of [a] corporation unless the corporation‘s management has refused to pursue the same action for reasons other than good-faith business judgment.” Franchise Tax Bd., 493 U.S. at 336. Only “shareholder[s] with a direct, personal interest in a cause of action,” rather than “injuries [that] are entirely derivative of their ownership interests” in a corporation, can bring actions directly. Id. at 336-37.
Under Delaware law, whether a shareholder‘s claim is derivative or direct depends on the answers to two questions: “(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?” Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004) (en banc). To be direct, a claim need not be based on a shareholder injury that is “separate and distinct from that suffered by other stockholders.” Id. at 1035 (internal quotation marks omitted). A claim may be direct even if “all stockholders are equally affected.” Id. at 1038-39.
There exists a “presumption that state law should be incorporated into federal common law” unless doing so in a particular context “would frustrate specific objectives of the federal programs.” Kamen, 500 U.S. at 98. And this presumption “is particularly strong in areas in which private parties have entered legal relationships with the expectation that their rights and obligations would be governed by state-law standards.” Id. Relevant here, the Supreme Court has observed that “[c]orporation law is one such area.” Id.; see also Burks v. Lasker, 441 U.S. 471, 478 (1979) (“Congress has never indicated that the entire corpus of state corporation law is to be replaced simply because a plaintiff‘s cause of action is based upon a federal statute.“). Delaware law is consistent with, and does not frustrate, the third-party standing principle under federal law. See Kowalski, 543 U.S. at 130 (stating that “a party seeking third-party standing” must show a “close” relationship with the person who possesses the right” and a “hindrance” to the possessor‘s ability to protect his own interests“); Franchise Tax Bd., 493 U.S. at 336 (setting forth the shareholder standing rule). Accordingly, Delaware law is applicable to the question of whether the Equity Claims are direct in nature.
Although Starr claims that it was directly affected by the Government‘s acquisition of equity, its alleged injuries require first showing that AIG was either “caused to overpay for [the loan] that it received in exchange” for newly issued stock or forced to issue that stock without any legal basis whatsoever. Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006). Typically, “claims of corporate overpayment are treated as causing harm solely to the corporation and, thus, are regarded as derivative.” Id. “Such claims are not normally regarded as direct, because any dilution in value of the corporation‘s stock is merely the unavoidable result (from an accounting standpoint) of the reduction in the value of the entire corporate entity, of which each share of equity represents an equal fraction.” Id. The proper remedy for such harms usually goes to the corporation as “a restoration of the improperly reduced value.” Id.
The injuries that Starr alleges with respect to the Government‘s acquisition of AIG equity are therefore quintessentially “dependent on an injury to the corporation,” and any remedy would flow to AIG. Tooley, 845 A.2d at 1036. Absent an applicable recognition under federal or Delaware law that Starr‘s alleged injuries give rise to a direct cause of action, the Equity Claims would be exclusively derivative in nature.
We make a couple of observations at the outset to provide context to our discussion. We then proceed to address whether Starr has direct standing under Delaware law to pursue the Equity Claims despite their derivative character. Finally, we consider several alternative theories of direct standing that Starr submits, including theories under federal law.
1
First, we observe that Starr does not appear to meaningfully distinguish among the various Equity Claims for purposes of standing. Rather, Starr generally characterizes the Equity Claims as alleging “the wrongful expropriation of [its] economic and voting interests in AIG for the Government‘s own corresponding benefit.” Appellant‘s Resp. & Reply Br. 22. Because Starr has the burden of demonstrating standing and relies primarily on this theory of harm, we do too. See FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990) (“[S]tanding cannot be inferred argumentatively from averments in the pleadings.” (internal quotation marks omitted)).
Second, we address Starr‘s argument that its case for direct standing is particularly compelling because the Government‘s acquisition of newly issued equity should be equated with a physical exaction of stock directly from AIG shareholders. Specifically, Starr urges us to view the equity acquisition as being “indistinguishable from a physical seizure of four out of every five shares of [shareholders‘] stock.” Appellant‘s Resp. & Reply 24-25. To do otherwise, Starr submits, would be to “elevate form over substance.” Id. at 24.
We decline Starr‘s invitation to view the challenged conduct as it wishes. There is a material difference between a new issuance of equity and a transfer of existing stock from one party to another. Newly issued equity necessarily results in “an equal dilution of the economic value and voting power of each of the corporation‘s outstanding shares.” Rossette, 906 A.2d at 100. In contrast, a transfer of existing stock creates an individual relationship between the transferor and the transferee. Equating AIG‘s issuance of new equity with a direct exaction from shareholders would largely presuppose the search for a direct and individual injury—e.g., the “separate harm” that results from “an extraction from the public shareholders and a redistribution to the controlling shareholder, of a portion of the economic value and voting power embodied in the minority interest.” Id. We therefore do not equate the Government‘s acquisition of equity with a physical seizure of Starr‘s stock.
Having addressed the threshold issues above, we turn to Starr‘s primary argument for standing. Starr submits, as the Claims Court decided at the pleading stage, that the Equity Claims fall within a “dual-nature” exception under Delaware law.
This dual-nature exception recognizes that certain shareholder claims may be “both derivative and direct in character.” Rossette, 906 A.2d at 99. This exception addresses circumstances when a “reduction in [the] economic value and voting power affected the minority stockholders uniquely, and the corresponding benefit to the controlling stockholder was the product of a breach of the duty of loyalty well recognized in other forms of self-dealing transactions.” Id. at 102. Accordingly, shareholder claims are both derivative and direct under Delaware law when two criteria are met: “(1) a stockholder having majority or effective control causes the corporation to issue ‘excessive’ shares of its stock in exchange for assets of the controlling stockholder that have a lesser value,” and “(2) the exchange causes an increase in the percentage of the outstanding shares owned by the controlling stockholder, and a corresponding decrease in the share percentage owned by the public (minority) shareholders.” Id. at 100; see also Gatz v. Ponsoldt, 925 A.2d 1265, 1278 (Del. 2007) (same).
Starr argues that the Equity Claims fall within the dual-nature exception because the Government—though not a majority stockholder when it acquired AIG equity—was the “controlling” party that caused terms of the
Starr‘s emphasis on such leverage, however, misses the mark under the dual-nature exception‘s requirement for “majority or effective control.” The dual-nature exception stems from a concern about the “condonation of fiduciary misconduct” at the expense of minority shareholders. Rossette, 906 A.2d at 102; see also Feldman v. Cutaia, 956 A.2d 644, 657 (Del. Ch. 2007) (“[I]t is clear from [Rossette and Gatz] that the Delaware Supreme Court intended to confine the scope of its rulings to only those situations where a controlling stockholder exists. Indeed, any other interpretation would swallow the general rule that equity dilution claims are solely derivative ....“). Although “control” does not necessarily require the self-dealing party to be a pre-existing majority stockholder, Delaware case law has consistently held that a party has control only if it acts as a fiduciary, such as a majority stockholder or insider director, or actually exercises direction over the business and affairs of the corporation. See Feldman, 956 A.2d at 657 (stating the “well-established test for a controlling stockholder under Delaware law“); Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984) (stating that a minority shareholder may have “control” through an “actual exercise of direction over corporate conduct“); see, e.g., Gatz, 925 A.2d at 1280-81 (requiring a “fiduciary [who] exercises its control over the corporate machinery to cause an expropriation of economic value and voting power from
Outside third parties with leverage over a transaction, even in a take-it-or-leave-it scenario, do not necessarily have a responsibility to protect the interests of a counterparty, less so the interests of a counterparty‘s constituents. Starr has not shown that the Government, through its alleged leverage, owed any fiduciary duties to Starr at the time of the equity acquisition. Cf. In re J.P. Morgan Chase & Co. S‘holder Litig., 906 A.2d 766, 774-75 (Del. 2006) (observing that the dual-nature exception has “no application ... where the entity benefiting from the allegedly diluting transaction . . . is a third party rather than an existing significant or controlling stockholder” (alterations in original) (internal quotation marks omitted)). Nor has Starr sufficiently shown that the Government actually exercised direction over AIG‘s corporate conduct, even assuming that the AIG Board was faced with a dire dilemma between accepting a
The Claims Court nevertheless found the Government to be “sufficiently analogous” to a party owing fiduciary duties to AIG shareholders. Starr II, 106 Fed. Cl. at 65. It reasoned that the Government had a “preexisting duty” to AIG shareholders under the
Therefore, Starr has not demonstrated that it has direct standing to pursue the Equity Claims by virtue of the dual-nature exception under Delaware law.
3
Starr submits several other theories in the alternative to argue that it has direct, not just derivative, standing: (1) the Supreme Court recognizes that the circumstances of this case give rise to direct claims; (2) the Government intentionally took away AIG shareholder voting rights that could have undermined the Government‘s interest in AIG; (3) the Government violated the
a
Starr argues that the Supreme Court has recognized direct standing “[i]n a case
Starr premises its reliance on Alleghany by arguing that to establish standing under federal law, “a plaintiff need only show a ‘concrete and particularized’ ‘injury in fact’ which may be redressed by a favorable decision.” Appellant‘s Resp. & Reply Br. 33 (quoting Lujan, 504 U.S. at 560-61). That is a recitation of a portion of the constitutional requirements for standing. As we have already explained, though, Starr must also satisfy principle of third-party standing, not just the minimum constitutional requirements.
Alleghany is distinguishable and did nothing to alter the principle of third-party standing. The minority shareholders in that case filed an action against the corporation, Alleghany, to restrain it from issuing a new class of preferred stock. 353 U.S. at 153, 158-59. The shareholders also sought to set aside orders by the Interstate Commerce Commission (“ICC“) approving the new issuance (as purportedly required by statute). Id. The Supreme Court held that the threatened dilution of the minority shareholders’ equity “provided sufficient financial interest to give them standing” to challenge the ICC‘s orders. Id. at 160.
Notably, the gravamen of the dispute in Alleghany was between shareholders on one side and the corporation (and ICC) on the other. The shareholders were minority stakeholders, and there is no indication that the corporation itself was harmed by the challenged conduct. Accordingly, there was no issue as to whether the claims belonged derivatively to shareholders suing on behalf of the corporation. As the Court observed, it was not presented with a case “where the injury feared [wa]s the indirect harm which may result to every stockholder from harm to the corporation.”19 Id. at 159-60 (internal quotation marks omitted) (quoting Pittsburgh & W. Va. Ry. Co. v. United States, 281 U.S. 479, 487 (1930)). The only dispute with respect to standing was whether the threatened dilution of minority shareholder interests constituted injury-in-fact, a constitutional requirement of standing.
Here, in contrast, Starr‘s interests are allegedly aligned with, not adverse to, the corporation. Starr contends that the Government‘s acquisition of equity, in addition to injuring AIG, harmed all AIG shareholders “on a ratable basis, share for share.” J.A. 501694, 502227; see also Oral Argument 8:15-8:37 (“Starr was not affected differently than other shareholders with respect to the fact that it lost 80% of its voting control . . . . [I]t was not proportionally affected differently.“). We must, therefore, determine whether Starr has standing to seek direct relief, not just derivative relief, for the Equity Claims—the issue on which our standing analysis focuses. It is not enough that, under Alleghany, the dilution of Starr‘s equity might establish injury-in-fact.
In short, the Alleghany Court, under very different circumstances, had no occasion
We are thus not persuaded that Alleghany grants Starr direct standing to pursue the Equity Claims.
b
Starr separately argues that it has direct standing under Delaware law because the Government “intentionally nullified” its “voting rights.” Appellant‘s Resp. & Reply Br. 29. As we have noted, the general dilution of voting power that Starr complains of was dependent on AIG‘s equity being unlawfully taken from the corporation itself and does not also give rise to direct claims under the dual-nature exception. We focus here, as Starr does, on another, narrower, harm that Starr alleges the AIG shareholders suffered: the loss of a common shareholder vote to block the Government‘s ability to obtain preferred stock and thereby “undermine the Government‘s interest in AIG.” Id. at 30 (internal quotation marks omitted).
Specifically, Starr asserts that the Government had expected to acquire warrants at the time it proposed the Term Sheet but later used its “control” of AIG to change the form of equity in the Credit Agreement to preferred stock. Starr alleges, and the trial court found, that by changing the form of equity from warrants to preferred stock, the Government avoided a common shareholder vote on whether or not the Government would have been able to exercise its warrants.20
The Government argues that Starr has waived any argument based on a purported deprivation of a procedural voting right to block the exercise of warrants. Having reviewed the record, we agree that Starr has waived this argument. Although the trial court found that one reason the Government obtained AIG equity in the form of preferred stock was to avoid a shareholder vote, Starr did not separately pursue direct relief on that basis.21
Even if Starr had preserved a claim for relief based on losing a specific shareholder vote, Starr has not shown that that injury would give rise to a direct claim. Starr‘s argument in this regard rests on a single reported case, Condec Corp. v. Lunkenheimer Co., 230 A.2d 769 (Del. Ch. 1967). In Condec, the defendant corporation‘s management had issued equity to a third-party bidder designed to divest the plaintiff shareholder of its majority interest in the corporation and thereby thwart that shareholder‘s takeover bid. Id. at 771-73. The court in Condec granted relief to the frozen-out shareholder, noting that the corporation‘s issuance of stock “was not connected with [any] proper corporate purpose” and “was clearly unwarranted because it unjustifiably str[uck] at the very
Condec is distinguishable because the Government, again, was not a fiduciary to Starr as of the date it acquired AIG equity and thus could not have violated any tenet of corporate representation. In addition, the Condec court did not discuss standing in any detail. Id. To the extent it found direct standing based entirely on the loss of a right to vote, as Starr contends, that rationale has since been rejected. The Delaware Supreme Court has held that “the concept of a ‘special injury,‘” including one regarding “the right to vote, or to assert majority control,” “is not helpful to a proper analytical distinction between direct and derivative actions.” Tooley, 845 A.2d at 1035 (internal quotation marks omitted). Thus, Starr‘s reliance on Condec is misplaced.22
Starr has neither preserved nor supported its theory that the Government‘s purported nullification of a collective majority voting interest is sufficient for direct standing.
c
We turn next to Starr‘s reliance on the
Starr argues that the Government has a duty not to violate the
d
Finally, we address Starr‘s contention that it has direct standing because AIG‘s shareholders were singled out as the “direct target[] of an illegal act.” Appellant‘s Resp. & Reply Br. 31. The Government argues that “Starr‘s hypothesis [in this regard] is untethered to reality.” Government‘s Reply Br. 10. We agree with the Government.
Starr relies on the trial court‘s findings that “the Credit Agreement‘s intended punitive effect was ‘immediately understood‘” and that AIG shareholders “were the parties directly affected by the Government‘s . . . action.” Appellant‘s Resp. & Reply Br. 32-33 (quoting Starr VI, 121 Fed. Cl. at 447, 465). The trial court also
And while punitive measures against a corporation may ultimately be borne by its shareholders, a finding that those measures targeted shareholders directly is a wholly different matter.23 To be sure, there is some testimony in the record that the Government desired to penalize AIG‘s shareholders. For instance, Starr points to testimony purportedly showing that “[t]he Government specifically said ‘we want to punish [AIG] shareholders‘” with the equity term. Oral Argument 10:04-10:28; see also id. at 11:59-12:23; Appellant‘s Resp. & Reply Br. 32. The trial court, however, did not go as far as to reach a conclusion that the Government wanted to punish AIG shareholders directly.24 And in our appellate function we do not make such a factual finding. See Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 714 (1986) (holding that a court of appeals “should not simply have made factual findings on its own“); Atl. Thermoplastics Co. v. Faytex Corp., 5 F.3d 1477, 1479 (Fed. Cir. 1993) (“Fact-finding by the appellate court is simply not permitted.“).
In sum, while we have no reason to doubt that Starr was affected by the Government‘s acquisition of AIG equity, Starr has not established any ground for direct standing under either federal or Delaware law. The alleged injuries to Starr are merely incidental to injuries to AIG, and any remedy would go to AIG, not Starr. The Equity Claims are therefore exclusively derivative in nature and belong to AIG, which has exercised its business judgment and declined to prosecute this lawsuit.
We need not reach the remaining issues on appeal with respect to the Equity Claims, including the question of whether the equity term was permissible under
B
We turn now to Starr‘s remaining direct claims—the Stock Split Claims based specifically on how the Government, after obtaining AIG equity, managed to convert its preferred stock to common stock. Starr submits that the Claims Court clearly erred in denying those claims based on the record evidence. “A finding is ‘clearly erroneous’ when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake
According to Starr, “the only permissible view of the evidence is that the Government structured and timed the reverse stock split to deprive AIG common shareholders of their right to vote as a class to block” the Government‘s exchange of preferred stock for common stock. Appellant‘s Resp. & Reply Br. 66. Starr raises three features of the reverse stock split that, contrary to the trial court‘s findings, are allegedly objectionable. First, Starr argues that the use of the 1:20 ratio was higher than necessary to avoid delisting. Second, it relies on the lack of any explanation for why the reverse stock split applied only to issued shares rather than all of AIG‘s authorized shares. Third, Starr asserts that the vote on the reverse stock split was delayed until the last day possible to force shareholders to vote in favor of it to avoid NYSE delisting.
Despite these pieces of circumstantial evidence, the Claims Court found that there was “insufficient evidence in the record to support [the Stock Split Claims].” Starr VI, 121 Fed. Cl. at 455. It found that even though the reverse stock split “allow[ed] the Government to avoid a separate class vote of the common shareholders,” Starr had “presented little evidence showing that the idea for the exchange preceded the reverse stock split” and was designed to avoid such a vote. Id. at 455-56. Instead, the court held, the “primary purpose” of the reverse stock split was to avoid a delisting on the NYSE. Id. at 456. It noted that “[e]very witness at trial testified unequivocally that Starr and AIG‘s other shareholders voted” in favor of the reverse stock split in order to avoid NYSE delisting. Id. at 455.
We agree with the Government that the trial court did not clearly err in finding that the reverse stock split was not a vehicle designed by the Government to obtain AIG common stock. For example, there is no dispute that the Government could have converted a substantial amount of its preferred stock into common stock even without the reverse stock split, and common shareholders, including Starr itself, voted in favor of the reverse stock split. The record also shows that the proxy statement expressly stated that the reverse stock split was aimed at avoiding NYSE delisting. And more reliably, the Government waited well over a year after the reverse stock split to convert its preferred shares—a gap in time that makes it less likely that the reverse stock split was planned to take away shareholder interests. Even if the evidence could have led a trier of fact to a different conclusion, Starr has not persuaded us that the trial court clearly erred.26 See, e.g., Fraser Constr. Co. v. United States, 384 F.3d 1354, 1364 (Fed. Cir. 2004) (upholding factual findings under clear-error review even though “a trier of fact could have made a different finding“).
As Starr recognizes, the reverse stock split itself was permissible under Delaware law. See
III. CONCLUSION
For the foregoing reasons, we vacate the Claims Court‘s holdings on the merits of the illegal exaction claim, remand with instructions for dismissal of the Equity Claims, and affirm the denial of relief with respect to the Stock Split Claims. After disposing of these issues, we conclude that any remaining issues on appeal and cross-appeal are moot.
VACATED-IN-PART, AFFIRMED-IN-PART, AND REMANDED
COSTS
Costs awarded to the United States.
United States Court of Appeals for the Federal Circuit
STARR INTERNATIONAL COMPANY, INC., IN ITS OWN RIGHT AND ON BEHALF OF TWO CLASSES OF OTHERS SIMILARLY SITUATED, Plaintiff-Appellant v. UNITED STATES, Defendant-Cross-Appellant AMERICAN INTERNATIONAL GROUP, INC., Defendant
2015-5103, 2015-5133
Appeals from the United States Court of Federal Claims in No. 1:11-cv-00779-TCW, Judge Thomas C. Wheeler.
WALLACH, Circuit Judge, concurring-in-part and concurring-in-the-result.
“[E]very federal appellate court has a special obligation to satisfy itself not only of its own jurisdiction, but also that of the lower courts in a cause under review, even though the parties are prepared to concede it.” Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986) (internal quotation marks and citation omitted). The same is true of a party‘s standing under
DISCUSSION
I agree with the result of the majority opinion. I also agree with the majority‘s thorough summary of the facts and, thus, provide only a brief summary for the necessary context here.
At the inception of what is now known as the Great Recession, American International Group, Inc. (“AIG“) was on the brink of bankruptcy. As a result, the United States (“Government“) approved an $85 billion dollar loan to AIG, accepting a 79.9% equity stake in AIG as collateral. Starr Int‘l Co. v. United States (Starr IX), 121 Fed. Cl. 428, 430-31 (2015). Starr, one of the largest shareholders of AIG common stock, alleged that that the Government‘s actions violated the
I believe that the Court of Federal Claims committed several errors regarding jurisdiction and standing, both as to Starr‘s illegal exaction and taking claims. Although I agree with the majority‘s conclusion that Starr lacks standing under Delaware law, Maj. Op. 27, I also believe that the majority‘s failure to address the Court of Federal Claims‘s errors fosters uncertainty because it bypasses an important jurisdictional question and elevates state law over constitutional standing requirements. Therefore, I first address jurisdiction and then standing.
I. Jurisdiction
“[A] federal court [generally must] satisfy itself of its jurisdiction over the subject matter before it considers the merits of a case.” Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999). The Court of Federal Claims is no exception. See Fisher v. United States, 402 F.3d 1167, 1173 (Fed. Cir. 2005) (en banc in relevant part).
As will be explained more fully below, the jurisdictional requirements for Starr‘s illegal exaction claim and taking without just compensation claim differ in two key respects. First, Starr must allege a separate money-mandating source of law to invoke Court of Federal Claims jurisdiction for its illegal exaction claim, even though it need not do so for its taking claim. Second, whether Starr‘s claim should be evaluated as an illegal exaction or a taking depends upon whether the Government‘s actions were authorized.
Therefore, I first articulate the jurisdictional requirements of the Tucker Act, including the application of the money-mandating requirement to illegal exaction and taking claims. I then explain the Court of Federal Claims‘s errors in finding jurisdiction. Next, I analyze the statutory provision at issue on appeal, § 13(3) of the
A. Tucker Act Jurisdiction Over Illegal Exaction and Taking Claims
1. The Tucker Act‘s Money-Mandating Requirement
“Jurisdiction over any suit against the Government requires a clear statement from the United States waiving sovereign immunity, together with a claim falling within the terms of waiver.” United States v. White Mountain Apache Tribe, 537 U.S. 465, 472 (2003) (citations omitted).3 “The terms of consent to be sued may not be inferred, but must be unequivocally expressed in order to define a court‘s jurisdiction.” Id. (internal quotation marks, brackets, and
Pursuant to the Tucker Act, the Court of Federal Claims has jurisdiction “to render judgment upon any claim against the United States founded either upon the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort.”
Although the waiver of sovereign immunity must be unequivocal, the money-mandating source of substantive law may be implied. In United States v. Mitchell, the Supreme Court held that the money-mandating source of substantive law may be implicit, reaffirming that a plaintiff “must demonstrate that the source of substantive law he relies upon can fairly be interpreted as mandating compensation by the Federal Government for the damages sustained.” 463 U.S. 206, 216-17 (1983) (emphasis added) (internal quotation marks, citation, and footnote omitted). Subsequently, the Supreme Court clarified the “fairly be interpreted” standard from Mitchell in White Mountain:
This fair interpretation rule demands a showing demonstrably lower than the standard for the initial waiver of sovereign immunity. . . . It is enough, then, that a statute creating a Tucker Act right be reasonably amenable to the reading that it mandates a right of recovery in damages. While the premise to a Tucker Act claim will not be lightly inferred, a fair inference will do.
537 U.S. at 472-73 (emphases added) (internal quotation marks and citations omitted).
2. The Application of the Tucker Act‘s Money-Mandating Requirement to Illegal Exaction and Taking Claims
Both illegal exaction and taking claims derive from the Fifth Amendment. The Takings Clause of the Fifth Amendment inherently is money-mandating. See Jan‘s Helicopter Serv., Inc. v. Fed. Aviation Admin., 525 F.3d 1299, 1309 (Fed. Cir. 2008) (“It is undisputed that the Takings Clause of the Fifth Amendment is a money-mandating source for purposes of Tucker Act jurisdiction.“). However, we have not clearly explained whether the same is true for illegal exaction claims, see Starr IX, 121 Fed. Cl. at 464-65 (discussing apparent inconsistencies in our court‘s application of the money-mandating requirement to illegal exaction claims), which “involve[] a deprivation of property without due process of law, in violation of the Due Process Clause of the Fifth Amendment,” Norman v. United States, 429 F.3d 1081, 1095 (Fed. Cir. 2005).
Indeed, the weight of our illegal exaction case law supports this conclusion. See, e.g., Norman, 429 F.3d at 1095 (“To invoke Tucker Act jurisdiction over an illegal exaction claim, a claimant must demonstrate that the statute or provision causing the exaction itself provides, either expressly or by necessary implication, that the remedy for its violation entails a return of money unlawfully exacted.” (internal quotation marks and citation omitted)); Cyprus Amax Coal Co. v. United States, 205 F.3d 1369, 1373 (Fed. Cir. 2000) (explaining that the appeal “turns on whether [the Export Clause,
It is regrettable that the majority chooses to bypass this opportunity to clarify the law for future cases. Rather than forego this opportunity, I would find that illegal exaction claims are not inherently money-mandating and that, consequently, Starr was required to plead a separate money-mandating source of substantive law.
B. The Court of Federal Claims Erred in Its Jurisdictional Findings
In Fisher, this court held that “[w]hen a complaint is filed alleging a Tucker Act claim . . . the trial court at the outset shall determine, either in response to a motion by the Government or sua sponte (the court is always responsible for its own jurisdiction), whether the Constitutional provision, statute, or regulation is one that is money-mandating.” 402 F.3d at 1173
Instead of determining whether a money-mandating statute is required for an illegal exaction claim at the outset, the Court of Federal Claims in the instant action deferred this determination for its final merits opinion. See Starr IX, 121 Fed. Cl. at 463-64 (noting that “there is one jurisdictional issue where the Court previously granted an inference in Starr‘s favor, but which now requires further analysis“); Starr Int‘l Co. v. United States (Starr II), 106 Fed. Cl. 50, 84 (2012) (“[T]he [c]ourt concludes that it is premature at this stage to rule decisively on the issue [of whether § 13(3) is money-mandating], let alone treat it as dispositive for purposes of Starr‘s illegal exaction claim.“). The result of that analytical deferral was a thirty-seven day trial involving three Cabinet-level officials and five years of costly litigation. See Starr IX, 121 Fed. Cl. at 431-32.
In its ultimate post-trial jurisdictional findings, the Court of Federal Claims recognized that “taking claims stem from explicit money-mandating language in the Fifth Amendment, while illegal exaction claims do not.” Id. at 464.4 The Court of Federal Claims then identified apparent inconsistencies in our precedent, stating that “some decisions have dispensed with the requirement for a money-mandating statute, seemingly embracing the concept that the Government should not escape responsibility for its unauthorized actions based on a jurisdictional loophole,” id., while “[o]ther decisions have espoused a slightly tighter standard, but one that is still broader than simply requiring a ‘money-mandating’ source of law,” id. at 465. The Court of Federal Claims found that Starr‘s illegal exaction claims satisfied this broader jurisdictional threshold. Id. at 465-66.
In support, the Court of Federal Claims relied on language from our decision in Norman, which states that a plaintiff “must demonstrate that the statute or provision causing the exaction [must] itself provide[], either expressly or by necessary implication, that the remedy for its violation entails a return of money unlawfully exacted.” 429 F.3d at 1095 (emphasis added) (internal quotation marks and citation omitted). On this basis, the Court of Federal Claims determined that
where the Government has imposed unlawful conditions in connection with an emergency loan under [§] 13(3) of the
Federal Reserve Act , the Government should not be permitted to insulate itself from liability by arguing that [§] 13(3) is not “money-mandating.” If this were true, the Government could nationalize a private company, as it did to AIG, without fear of any claims or reprisals. Section 13(3) does not contain any express “money-mandating” language, but “bynecessary implication,” the statute should be read to allow the shareholders’ cause of action here. By taking 79.9 percent equity and voting control of AIG, the Government exacted the shareholders’ property interests. The two certified classes of AIG common stock shareholders were the parties directly affected by the Government‘s unlawful action, and “by necessary implication,” they should be permitted to maintain their lawsuit.
Starr IX, 121 Fed. Cl. at 465 (emphases added). In addition to disregarding the en banc court‘s instructions in Fisher to decide jurisdiction at the outset, the Court of Federal Claims‘s reasoning suffers from five separate defects.
As an initial matter, when asked to reconsider whether § 13(3) is money-mandating, the Court of Federal Claims stated that it “must draw all reasonable inferences in favor of” Starr and, thus, concluded that “at this stage Starr is entitled to the inference that [§] 13(3) is indeed money-mandating.” Starr Int‘l Co. v. United States (Starr III), 107 Fed. Cl. 374, 378 (2012) (citing Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). However, Iqbal refers to factual, not legal, inferences. See Iqbal, 556 U.S. at 678 (“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” (citation omitted)). Indeed, the Supreme Court has explained that allegations in a complaint must rest on a plausible legal theory to survive dismissal in the early stages of litigation. See, e.g., Fifth Third Bancorp v. Dudenhoeffer, 134 S. Ct. 2459, 2471-72 (2014).
Second, the Court of Federal Claims never found that Starr met its burden of establishing jurisdiction by a preponderance of the evidence. See Reynolds v. Army & Air Force Exch. Serv., 846 F.2d 746, 748 (Fed. Cir. 1988) (“[The plaintiff] bears the burden of establishing subject matter jurisdiction by a preponderance of the evidence.” (citations omitted)). Without the requisite evidence, the Court of Federal Claims may not exercise jurisdiction. See M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1327 (Fed. Cir. 2010).
Third, the Court of Federal Claims simply repeated one phrase from Norman as purported support for its erroneous interpretation of the money-mandating jurisdictional requirement. See Starr IX, 121 Fed. Cl. at 465. Had the Court of Federal Claims reviewed the array of available case law on Tucker Act jurisdiction, it must have found to the contrary. See, e.g., Cyprus, 205 F.3d at 1373; Crocker, 125 F.3d at 1476-77. In fact, in Norman, we affirmed the Court of Federal Claims‘s dismissal of the illegal exaction claim for lack of jurisdiction because the statute at issue “d[id] not, by its terms or by necessary implication, provide a cause of action with a monetary remedy for its violation.” 429 F.3d at 1096 (emphases added). Norman—as well as the weight of our illegal exaction case law—requires plaintiffs to identify a money-mandating source of substantive law. See supra Section I.A.2.
Fourth, the Court of Federal Claims‘s legal reasoning is based on that court‘s own theory of equity. While acknowledging that § 13(3) “does not contain express money-mandating language,” the Court of Federal Claims simply repeated what the court believed “should” happen. Starr IX, 121 Fed. Cl. at 465 (internal quotation marks omitted). But what a law “should” do and what it does are often two different questions. See Lexmark Int‘l, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1388 (2014) (“We do not ask whether in our judgment Congress should have authorized [the plaintiff]‘s suit, but whether Congress in fact did so.“). The test is whether the statute is “reasonably amenable to the reading that it mandates a right of recovery in damages,” White Mountain, 537 U.S. at 473, and the Court of Federal Claims did not apply that test.
Fifth, the Court of Federal Claims incorrectly tethered its money-mandating determination to the facts of this case, see Starr IX, 121 Fed. Cl. at 463-64; Starr II, 106 Fed. Cl. at 84, but the correct inquiry is whether § 13(3) itself is money-mandating irrespective of the facts in a given dispute, see Fisher, 402 F.3d at 1173. As a result, the Court of Federal Claims incorrectly based its money-mandating finding on its post-facto determination that the Government took unauthorized action, see Starr IX, 121 Fed. Cl. at 465 (stating that “the Government could nationalize a private corporation, as it did to AIG, without fear of any claims or reprisals” (emphasis added)), when it should have focused on interpreting the language of the statute to determine Congressional intent. This inquiry neither requires nor permits such considerations.
Taken together, these reasons not only warrant, but require, reversal of the Court of Federal Claims‘s finding of jurisdiction over Starr‘s illegal exaction claim. Nevertheless, I continue by evaluating § 13(3) under the appropriate standard to determine its effect on Starr‘s claims.
C. Statutory Interpretation of § 13(3) of the Federal Reserve Act
In this section, I discuss § 13(3) to determine its content and scope. Based on that analysis, I then evaluate in subsequent sections whether § 13(3) is money-mandating and whether it authorizes the taking of an equity stake (e.g., shares or stock warrants).
1. The Text of § 13(3) of the Federal Reserve Act
“[O]ur inquiry begins with the statutory text.” BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004) (citations omitted). Section 13(3), in relevant part, provides:
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System [(“BoG“)], by the affirmative vote of not less than five members, may authorize any Federal [R]eserve bank, during such periods as the said [BoG] may determine, at rates established in accordance with the provisions of [§] 357 of this title, to discount for any individual, partnership, or corporation, notes, drafts, and bills of exchange when such notes, drafts, and bills of exchange are indorsed or otherwise secured to the satisfaction of the Federal [R]eserve bank: Provided, That before discounting any such note, draft, or bill of exchange for an individual or a partnership or corporation the Federal [R]eserve bank shall obtain evidence that such individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions. All such discounts for individuals, partnerships, or corporations shall be subject to such limitations, restrictions, and regulations as the [BoG] may prescribe.
a. Conditions Precedent to Making a Loan
Section 13(3) includes three conditions precedent: (1) the existence of “unusual and exigent circumstances“; (2) an “affirmative vote” of at least five members of the BoG authorizing a Federal Reserve bank to take action permitted by the statute; and (3) “evidence that [an] individual, partnership, or corporation is unable to secure adequate credit accommodations from other banking institutions.”
b. Restrictions on the Loan‘s Terms
Section 13(3) also places three restrictions on the terms of a loan: a loan must be (1) “at rates established in accordance with the provisions of [§] 357 of this title“; (2) “indorsed or otherwise secured to the satisfaction of the Federal [R]eserve bank“; and (3) “subject to such limitations, restrictions, and regulations as the [BoG] may prescribe.”
Second, the § 13(3) loan must be “indorsed or otherwise secured to the satisfaction of the Federal [R]eserve bank.”
Third, the BoG ”may prescribe” “limitations, restrictions, and regulations” on the Federal Reserve bank‘s loan.
2. Other Provisions of the Federal Reserve Act
Because “[s]tatutory construction . . . is a holistic endeavor,” United Sav. Ass‘n v. Timbers of Inwood Forest Assocs., 484 U.S. 365, 371 (1988), “we must not be guided by a single sentence or member of a sentence, but look to the provisions of the whole law, and to its object and policy,” United States v. Boisdoré‘s Heirs, 49 U.S. (8 How.) 113, 122 (1849). Thus, I evaluate how § 13(3) fits into the statutory scheme of
shall have power— . . . [t]o exercise by its board of directors, or duly authorized officers or agents, all powers specifically granted by the provisions of [the Federal Reserve Act] and such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by the [Federal Reserve Act].
However, the statutory text limits these additional powers in two ways. First, the powers are “incidental,” and “an incidental power can avail neither to create powers which, expressly or by reasonable implication, are withheld nor to enlarge powers given; but only to carry into effect those which are granted.” First Nat‘l Bank in St. Louis v. Missouri, 263 U.S. 640, 659 (1924). Second, the incidental powers must be “within the limitations prescribed by the [Federal Reserve Act],” meaning they cannot contravene the limitations of § 13(3) and the remainder of the statute. Section 4(4) thus authorizes Federal Reserve banks to perform certain activities “necessary” to “the business of banking,” but these powers cannot exceed the authorized powers of the statute.
3. Similar Provisions in Statutes Related to § 13(3)
The interpretation of particular text from related statutes in the same Title of the United States Code also may inform the interpretation of the same or similar text in the statute at issue. See Sullivan v. Stroop, 496 U.S. 478, 484 (1990) (interpreting “child support” in accordance with a closely-related statute using the same phrase). Relevant here, § 16 of the
The regulation interpreting the “incidental powers” provision of
[a] national bank may take as consideration for a loan a share in the profit, income, or earnings from a business enterprise of a borrower. A national bank also may take as consideration for a loan a stock warrant issued by a business enterprise of a borrower, provided that the bank does not exercise the warrant. The share or stock warrant may be taken in addition to, or in lieu of, interest.
4. Legislative History
Although of lesser interpretative value, courts frequently rely on legislative history. See, e.g., Thunder Basin Coal Co. v. Reich, 510 U.S. 200, 209 (1994) (“The legislative history of the Mine Act confirms this interpretation.“). I have not identified any legislative history relevant to my interpretation of § 13(3).
5. Additional Considerations Related to § 13(3)
Finally, although not central to my interpretation, it is worth noting that § 13(3) of the
D. The Court of Federal Claims Did Not Have Jurisdiction to Adjudicate Starr‘s Illegal Exaction Claim
The Court of Federal Claims is a court of limited jurisdiction, as provided for by the Tucker Act. See
1. Section 13(3) Is Not Money-Mandating as Required for Court of Federal Claims Jurisdiction Pursuant to the Tucker Act
When determining whether a statute is money-mandating, we ask whether the statute is “reasonably amenable to the reading that it mandates a right of recovery in damages.” White Mountain, 537 U.S. at 473. Based on my review of the text of § 13(3), I agree with the Court of Federal Claims that “[§] 13(3) does not contain express ‘money-mandating’ language . . . .” Starr IX, 121 Fed. Cl. at 465. There simply is no language in the statute discussing the Government‘s payment of money damages. Nor is § 13(3) “reasonably amenable” to such a reading. White Mountain, 537 U.S. at 473. Section 13(3) permits Federal Reserve banks to serve as a lender of last resort in “unusual and exigent circumstances.”
2. The Government‘s Actions Were Authorized Because § 13(3) Does Not Prohibit the Taking of Equity
The Court of Federal Claims lacked jurisdiction over Starr‘s illegal exaction claim
Although § 13(3) does not reference the taking of equity in a company expressly, the statute gives the Federal Reserve banks discretion on how the loan is secured. Section 13(3) places two primary restrictions on the terms of a loan. First, the Federal Reserve banks must make loans “at rates established in accordance with the provisions of [§] 357 of this title.”
The inquiry may not end there, however, as the statute must be viewed as a whole. United Sav. Ass‘n, 484 U.S. at 371. Viewing the statute as a whole reinforces this interpretation. Section 4(4) of the
Considering the entire statutory framework, I would find that § 13(3) is not money-mandating and otherwise authorizes Federal Reserve banks to take equity to secure loans. Because Starr‘s illegal exaction claim was premised on the purported money-mandating nature of § 13(3) and the Government‘s purported violation of § 13(3) by taking a 79.9% equity stake in AIG, the Court of Federal Claims lacked jurisdiction to adjudicate Starr‘s illegal
E. The Court of Federal Claims Had Jurisdiction to Adjudicate Starr‘s Taking Claim
Having found the Government liable for illegally exacting Starr‘s property, the Court of Federal Claims forewent consideration of Starr‘s taking claim under the Fifth Amendment. See Starr IX, 121 Fed. Cl. at 472 (determining that Starr‘s taking claim could not be decided due to the finding of an illegal exaction, because “the same government action cannot be both an unauthorized illegal exaction and an authorized taking“). Because I
would find that Starr‘s illegal exaction claim must be dismissed for lack of jurisdiction, I now turn to whether the Court of Federal Claims had jurisdiction to adjudicate Starr‘s taking claim.
The Fifth Amendment provides, inter alia, that “private property [shall not] be taken for public use, without just compensation.”
Starr satisfied these requirements. As to the cognizable property interest, “a court must look to existing rules and understandings and background principles derived from an independent source, such as state, federal, or common law, that define the dimensions of the requisite property rights for purposes of establishing a cognizable taking.” Klamath Irrigation Dist. v. United States, 635 F.3d 505, 511 (Fed. Cir. 2011) (internal quotation marks, brackets, and citation omitted). Shares and voting power are property interests pursuant to Delaware law. See, e.g.,
III. Standing
Having determined that the Court of Federal Claims did not have jurisdiction to
“The party invoking federal jurisdiction bears the burden of establishing” standing, Lujan v. Defs. of Wildlife, 504 U.S. 555, 561 (1992), and this burden increases as the litigation progresses:
At the pleading stage, general factual allegations of injury resulting from the defendant‘s conduct may suffice. . . . In response to a summary judgment motion . . . , the plaintiff can no longer rest on such mere allegations, but must set forth by affidavit or other evidence specific facts . . . . And at the final stage, those facts (if controverted) must be supported adequately by the evidence adduced at trial.
Id. (internal quotation marks and citations omitted). The Court of Federal Claims addressed standing over five opinions.7 However, as will be explained more fully below, the Court of Federal Claims never conducted a standing analysis pursuant to the three elements prescribed by the Constitution, and it only addressed whether the Government had the requisite control to form the basis of a direct claim, as required by Delaware law, at the pleading stage of the litigation. The majority commits the same error here, Maj. Op. 17 (articulating the three elements of constitutional standing and stating “we assume arguendo—as the parties do—that Starr has satisfied the requirements of constitutional standing derived from Article III“), despite Supreme Court precedent cautioning against such assumptions, see, e.g., Steel Co. v. Citizens for Better Env‘t, 523 U.S. 83, 94-97 (1998) (criticizing the appellate court for “‘assuming’ jurisdiction” rather than deciding jurisdictional issues such as Article III standing at the outset).8 I first
A. Starr Does Not Satisfy the Constitutional Requirements for Standing
1. Constitutional Standing Requirements
The Constitution delegates certain powers across the three branches of the Federal
“Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy” required by Article III. Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1547 (2016). The Supreme Court has established three elements comprising the “irreducible minimum” necessary to establish standing under the Constitution. Valley Forge Christian Coll. v. Ams. United for Separation of Church & State, Inc., 454 U.S. 464, 472 (1982). The party invoking federal jurisdiction must demonstrate that it has “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, 136 S. Ct. at 1547 (citations omitted).
2. Starr Has Not Shown That It Suffered an Injury in Fact
Although the party invoking federal jurisdiction must satisfy these constitutional minimum requirements at each stage of the litigation, the parties failed to address these elements in their briefs. This does not, however, prevent us from considering the issue. See Bender, 475 U.S. at 546 (holding that courts can raise standing sua sponte). Therefore, we first consider the constitutional elements of standing.
The “[f]irst and foremost” element of the constitutional standing inquiry is whether Starr has shown injury in fact. Citizens for Better Env‘t, 523 U.S. at 103 (citation omitted). “To establish injury in fact, a plaintiff must show that he or she suffered an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical.” Spokeo, 136 S. Ct. at 1548 (internal quotation marks and citation omitted). Because the Court of Federal Claims tried the case, Starr must show standing through “facts (if controverted) . . . supported adequately by the evidence adduced at trial.” Lujan, 504 U.S. at 561 (internal quotation marks and citation omitted).
Starr cannot show injury in fact because Starr‘s injury was not particularized. “Particularization is necessary to establish injury in fact.” Spokeo, 136 S. Ct. at 1548. “For an injury to be particularized, it must affect the plaintiff in a personal and individual way.” Id. (internal quotation marks and citation omitted). Neither the Court of Federal Claims nor Starr has presented any evidence that Starr‘s injury was particularized. In fact, Starr acknowledged that “[e]ach of the actions taken by the Government had an effect that was shared across all of the common stock on a ratable basis, share for share” in support of class certification. J.A. 501694 (emphases added) (internal quotation marks and citation omitted); Oral Argument 8:15-8:37, http://oralarguments.cafc.uscourts.gov/default.aspx?fl=2015-5103.mp3 (“Starr was not affected any differently than other shareholders with respect to the fact that
In an effort to show injury in fact, Starr attempts to analogize its position to the shareholders in Alleghany Corp. v. Breswick & Co., 353 U.S. 151 (1957). Starr Resp. & Reply 33-34. However, these arguments are unpersuasive. In Alleghany, the Supreme Court held the shareholders had direct standing to sue because the “new preferred stock issue . . . is convertible, and under the relevant notions of standing, the . . . dilution of the equity of the common stockholders provided sufficient financial interest to give them standing.” 353 U.S. at 160 (internal quotation marks omitted). But Alleghany was “not a case . . . where the injury feared [was] the indirect harm which may [have] result[ed] to every stockholder from harm to the corporation.” Id. at 159-60 (internal quotation marks and citation omitted). Instead, the “minority common stockholders” in Alleghany suffered injury that was distinct from the other stockholders. Id. at 158-60. Starr‘s alleged injury, in contrast, “is the indirect harm which may result to every stockholder from harm to the corporation,” which “is clearly insufficient to give . . . standing independently to institute suit.” Pittsburgh & W. Va. Ry. Co. v. United States, 281 U.S. 479, 487 (1930). Thus, Starr has failed to show particularization of its purported injury in fact.
Because Starr has not met its burden of showing that its injury was particularized through facts supported by the evidence adduced at trial, it cannot show injury in fact.9 As a result Starr cannot demonstrate the “irreduci- ble minimum” elements of constitutional standing. Therefore, I need not address the second and third elements of standing, i.e., traceability and redressability, nor do I, for the purposes of a constitutional standing analysis, need to consider the parties’ arguments as to standing under Delaware law.10 For these reasons, I would hold that Starr does not have constitutional standing to invoke federal court jurisdiction.
CONCLUSION
The Court of Federal Claims continuously deferred consideration of threshold issues of jurisdiction and constitutional standing. The majority does the same, avoiding difficult issues of jurisdiction and standing established by the Constitution and by statute in favor of state law. Rather