Starr International Co. v. United States

Starr International Company, Inc. (Starr) (plaintiff) was a former large shareholder in American International Group, Inc. (AIG). Maurice Greenberg, AIG’s former chief executive officer, was Starr’s controlling shareholder. Over the weekend of September 13–14, 2008, the United States government (defendant) became concerned about an imminent collapse of the United States and world economies. The Federal Reserve Board (Federal Reserve), the Federal Reserve Bank of New York (NY Fed), and the United States Treasury Department (collectively, government) focused on AIG, which was a counterparty to most of the world’s leading financial institutions and whose liquidity position was rapidly declining. The government quickly concluded that AIG would go bankrupt by September 16 without a massive cash infusion and that AIG’s bankruptcy would cripple the world economy. On September 16, the government approved an $85 billion loan to AIG. The government’s loan terms required AIG to pay 12 percent interest and cede a 79.9 percent equity interest to the government. AIG’s board approved the government’s proposal. AIG survived as a result of the government’s intervention, which resulted in a $22.7 billion profit for the United States. In November 2011, Starr sued the United States, alleging that the government’s actions violated the Fifth Amendment because they constituted (1) an illegal exaction due to the NY Fed’s lack of legal authority under the Federal Reserve Act to acquire a borrower’s equity and (2) a taking of AIG without just compensation. Starr argued that the government treated AIG much more harshly than other financial institutions that required financial assistance in September 2008. Per Starr, (1) although AIG’s financial-products division was in a liquidity crisis at the time, AIG’s other businesses were doing well; (2) other financial institutions were experiencing similar liquidity problems; (3) many entities other than AIG engaged in the credit-default-swap transactions that caused the liquidity shortage; and (4) other financial institutions received government help without having to give up equity (which the government had never before required) or pay exorbitant interest. In short, AIG contended that the government made AIG a scapegoat for the financial crisis despite the fact that other financial institutions were as culpable, if not more culpable, than AIG.