Starr International Corporation v. United States

In the summer of 2008, as a result of liquidity issues brought about by a nationwide housing crisis, American International Group, Inc. (AIG) faced possible bankruptcy and almost collapsed. To address its liquidity issues, AIG required access to the Federal Reserve’s discount window. The United States (government) (defendant), according to its authority under § 13(3) of the Federal Reserve Act, offered AIG access to the discount window on terms provided in a term sheet. The term sheet required that the government would be given control of AIG as a controlling lender and controlling shareholder and that the government would receive a nearly 80 percent equity stake in AIG in exchange for a loan of $85 billion. According to Starr International Company, Inc. (Starr), one of the largest shareholders of AIG common stock, the government falsely advised the CEO of AIG that the term sheet would be the only offer AIG would receive, and AIG’s board of directors was pressured to make a decision within hours of the offer. AIG accepted the offer by the next morning. Starr claimed the government took control of AIG to provide a backdoor bailout to other financial institutions and that the government took AIG’s property without due process or just compensation. Starr sued and argued that the equity the government received in exchange for the loan was grossly disproportionate and that the equity and terms of the loan and process of lending were in excess of the government’s authority under § 13(3). The government filed a motion to dismiss.