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Starr International Co., Inc. v. Federal Reserve Bank of New York

United States Court of Appeals, Second Circuit

January 29, 2014

STARR INTERNATIONAL COMPANY, INC., INDIVIDUALLY AND DERIVATIVELY ON BEHALF OF AMERICAN INTERNATIONAL GROUP, INC., Plaintiff-Appellant.
v.
FEDERAL RESERVE BANK OF NEW YORK, Defendant-Appellee, and AMERICAN INTERNATIONAL GROUP, INC., A DELAWARE CORPORATION, Nominal Defendant-Appellee

Argued September 17, 2013.

Petition for certiorari filed at, 04/29/2014

Starr International Co. (" Starr" ) appeals from the judgment of the United States District Court for the Southern District of New York (Paul A. Engelmayer, District Judge), dismissing its claims against the Federal Reserve Bank of New York (" FRBNY" ) for breach of fiduciary duty in its rescue of American International Group, Inc. (" AIG" ) during the fall 2008 financial crisis. Starr Int'l Co. v. Fed. Reserve Bank of N.Y., 906 F.Supp.2d 202 (S.D.N.Y. 2012). We agree with the district court that because of the uniquely federal interests at stake in stabilizing the national economy, state fiduciary duty law does not apply to FRBNY's rescue activities in this case and that it is preempted and replaced by federal common law. We thus AFFIRM the dismissal of Starr's complaint.

DAVID BOIES (Robert J. Dwyer, Boies, Schiller & Flexner LLP, New York, NY, and John L. Gardiner, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY, on the brief), Boies, Schiller & Flexner LLP, Armonk, NY, for Plaintiff-Appellant.

JOHN S. KIERNAN (Gary W. Kubek, Jennifer E. Spain, Nicholas C. Tompkins, David B. Noland, Thomas C. Baxter, Jr., Shari Leventhal, and Meghan McCurdy, Federal Reserve Bank of New York, on the brief), Debevoise & Plimpton LLP, New York, NY, for Defendant-Appellee.

JOSEPH S. ALLERHAND (Stephen A. Radin and Jamie L. Hoxie, on the brief), Weil, Gotshal & Manges LLP, New York, NY, for Nominal Defendant-Appellee.

Before: WALKER, LIVINGSTON, and CHIN, Circuit Judges.

OPINION

Page 38

John M. Walker, Jr., Circuit Judge:

Starr International Co. (" Starr" ) appeals from the judgment of the United States District Court for the Southern District of New York (Paul A. Engelmayer, District Judge ), dismissing its claims against the Federal Reserve Bank of New York (" FRBNY" ) for breach of fiduciary duty in its rescue of American International Group, Inc. (" AIG" ) during the fall 2008 financial crisis. Starr Int'l Co. v. Fed. Reserve Bank of N.Y., 906 F.Supp.2d 202 (S.D.N.Y. 2012). We agree with the district court that because of the uniquely federal interests at stake in stabilizing the national economy, state fiduciary duty law does not apply to FRBNY's rescue activities in this case and that it is preempted and replaced by federal common law. We thus AFFIRM the dismissal of Starr's complaint.

BACKGROUND

Because the district court dismissed Starr's claims on the pleadings, we must accept the complaint's factual allegations as true for the purposes of this appeal. See DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 110-11 (2d Cir. 2010). According to the complaint, AIG faced increasing liquidity stress during the national financial crisis in the fall of 2008, primarily due to collateral calls by AIG's counterparties on contracts known as " credit default swaps" provided by AIG that function as insurance on debt securities instruments. AIG's liquidity problems worsened after Lehman Brothers Holdings Inc. filed for bankruptcy on September 15, 2008, and the three largest rating agencies downgraded AIG's credit rating on the same day.

On September 16, 2008, after AIG told the federal government that it might have to file for bankruptcy, FRBNY offered AIG a rescue arrangement that included a credit facility from FRBNY of $85 billion at an initial interest rate of 14.5%, but required AIG to give the federal government approximately 80% interest in AIG common stock to be held in a trust (" the Trust" ). With no other alternatives besides bankruptcy available, AIG's directors and officers accepted the deal. On September 18, AIG's directors replaced the company's existing CEO with Edward Liddy, whom Starr alleges to have been under the control of FRBNY and thereby not acting solely in the interests of AIG's shareholders. On September 22, AIG and FRBNY executed the formal agreement (" the Credit Agreement" ) memorializing the above rescue arrangement.

At the time of the Credit Agreement, Starr was AIG's principal shareholder. Because Starr is time-barred from raising any ...


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