Overview
Judge Engelmayer has dismissed a $25 billion lawsuit filed by insurance company Starr International against the Federal Reserve Bank of New York over its 2008 bailout of AIG. Starr, which owned about 12 percent of AIG and is run by former AIG CEO Hank Greenberg, had alleged that the Fed assumed a fiduciary role at AIG by virtue of its actions during the bailout, and then breached its fiduciary duties to AIG’s shareholders.
Judge Engelmayer dismissed Starr’s claims for two independent reasons. First, the court held that Starr had not adequately pled that the Fed was a fiduciary to AIG and its shareholders, because Starr did not plead that the Fed had sufficient corporate control over AIG during the relevant time period. Second, the court held that even if the Fed did control AIG, Delaware Fiduciary duty law does not apply:
That is because, at the time it assertedly was a fiduciary of AIG’s, FRBNY was also a federal instrumentality charged with vitally important statutory responsibilities. These included preserving the stability of the nation’s banking system and economy. FRBNY’s challenged actions with regard to AIG during the financial crisis were integrally bound up in the rescue loan packages it furnished AIG in fall 2008, made with the goal of stabilizing the American economy. And, where imposing state-law duties upon a federal instrumentality would squarely conflict with its federal responsibilities, as would subjecting FRBNY to Delaware fiduciary duty law in connection with the terms of its serial rescues of AIG, such state law is preempted and is not properly borrowed by federal common law.Starr had also alleged that the Fed violated the violated the Equal Protection, Due Process, and Takings Clauses of the United States Constitution by expropriating AIG’s assets in a discriminatory manner, and without due process or just compensation. The takings claim was withdrawn, and the Equal Prtection and Due Process claims were dismissed as abandoned, but the court noted that they nevertheless failed to state a claim:
[T]here is no private cause of action for damages arising from an alleged deprivation of these rights against either federal agencies, see FDIC v. Meyer, 510 U.S. 471, 484–86 (1994), or private corporations acting under color of federal law, see Corr. Servs. Corp. v. Malesko, 534 U.S. 61, 69–72 (2001). Accordingly, Starr cannot recover damages from FRBNY by claiming that FRBNY violated Starr’s (or AIG’s) rights under either the Due Process or Equal Protection clauses.