DRR27, Here is the Plaintiff's preliminary statement. If anyone wants the whole thing posted, just lmk!
The whole thing is 121 pages :)
PRELIMINARY STATEMENT
At bottom this case is not about AIG, or even about the 2008-2009 “bailouts”. At bottom this case is about whether an agency may, without any limit or review, use the discretionary power Congress has given it to force citizens dependent on that discretion to surrender property Congress has not given the agency authority to demand.
Despite the many contested issues at trial, the central issue in this case is: was Defendant authorized to demand 79.9% of the AIG shareholders’ equity and voting control as “additional compensation” for a 13(3) loan?1 The answer to that question is critical in itself. It also affects the answer to every important issue in this case.
Defendant’s lack of authorization to demand equity and voting control as “additional compensation” for a 13(3) loan is clear from the plain language of Section 13(3) (PCOL § 4.1), this Court’s prior rulings (PCOL § 4.1.1), and Defendant’s own statements (and consistent actions) prior to this litigation (PCOL §§ 4.2, 4.6; PFOF §§ 23.0, 25.3.2). Moreover, even if it were assumed that Defendant were authorized under some circumstances to acquire equity and voting control as compensation for a 13(3) loan, it was not authorized to do so for a punitive political purpose, or in a discriminatory manner, without any justifying investigation, analysis, or findings (PCOL §§ 6.0-7.0; PFOF §§ 26.0-27.0, 29.0, 31.0-32.0).
Defendant’s unauthorized demand for, and receipt of, Plaintiffs’ equity and voting control as “additional compensation” for a 13(3) loan represents an Illegal Exaction because Defendant has exacted property it was not authorized to demand in return for the doing of an act committed to
1 Defendant asserts that it demanded and received 79.9% of the AIG shareholders’ equity and voting control as “additional compensation” for its loan to AIG. PTX 339 at 7; PTX 449 at 50; PTX 564 at 190-91; PTX 587 at 54 n.1; see also PFOF § 27.7. (As used herein, Plaintiffs’ Proposed Findings of Fact, Plaintiffs’ Proposed Conclusions of Law, Defendant’s Proposed Findings of Fact, and Defendant’s Proposed Conclusions of Law are cited as PFOF, PCOL, DFOF, and DCOL respectively. Cites to “Tr.” are cites to the trial transcript.)
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Defendant’s discretion (PCOL §§ 2.1-2.4), an act which, it is worth noting, the Government had determined was in the public interest (PFOF § 9.0).
Alternatively, Defendant’s acquisition is an uncompensated Taking because Defendant took 79.9% of Plaintiffs’ equity and voting control without just compensation (PCOL §§ 9.0-12.0, 18.0; PFOF § 37.6). Defendant concedes that the $500,000 it paid as the “purchase price” of the preferred was not just compensation. JX 185 at 2; DFOF at 191 n.40. Defendant’s argument that the preferred stock was justified as “additional compensation” for the 13(3) loan fails for three independent reasons: (a) Defendant was not authorized to demand the preferred stock as compensation for a 13(3) loan, (b) Defendant has admitted that the purpose of taking Plaintiffs’ equity was not to compensate Defendant, but simply to deprive Plaintiffs of the value of the equity (PTX 4002), and (c) Defendant was already fully compensated for its “fully secured” (PFOF § 21.1(b)-(m)), “over collateralized” (PFOF § 21.1(a)) loan by its unprecedentedly high interest rate and fees (PTX 3228 at 1; infra § II.B.7).
Defendant’s primary defense is that because AIG agreed to the exaction/taking, the transfer of equity and voting control was “voluntary”, and Plaintiffs cannot recover. Numerous cases provide recoveries for illegal exactions to which the plaintiff agreed in order to secure government agency actions (PCOL § 8.2). Indeed, in every case where a citizen has surrendered property that the Government is not authorized to demand as compensation for Government action the citizen needed, the citizen by definition agreed to do so to obtain the benefit of the Government action. Because by definition the desired government action is more valuable than what the citizen surrenders, any other rule would enable agencies to ignore Congressional limits on their authority and leave citizens without a remedy for illegal conduct (PCOL § 8.4).
Defendant’s voluntary agreement defense fails for three additional independent reasons. 2
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First, the agreement by AIG’s Board does not bind Plaintiffs, particularly where, as here, the exaction/taking was expressly designed to take away Plaintiffs’ rights (PFOF §§ 17.6-17.9, 26.2- 26.3, 28.0; see infra § II.B.4), where AIG was acting to protect the interests of stakeholders other than shareholders (PFOF §§ 20.1.1, 20.2(b)), and where Defendant with the Board’s concurrence intentionally prevented Plaintiffs from having an opportunity to vote on the exaction/taking (PFOF §§ 17.7-17.8, 28.0).
Second, it is now undisputed that the AIG Board had no realistic alternative to agreeing to Defendant’s demand for equity and voting control (PFOF § 20.0). Defendant materially and wrongfully contributed to AIG’s duress, including by using its monopoly power to improperly and discriminatorily demand equity and voting control as a condition of a 13(3) loan (PFOF §§ 22.0- 23.0, 32.0), by discouraging alternative sources of liquidity (PFOF § 11.0), and by initially offering credit in exchange for non-voting warrants and then threatening to call demand notes and force AIG into bankruptcy unless the Board agreed to substitute voting preferred stock (PFOF §§ 12.0, 16.0, 19.0-20.0). Such conduct was “wrongful”, violated “notions of fair dealing”, and constituted the use of “a temporary monopoly power . . . to obtain a benefit to which it is not entitled” (PCOL §§ 12.7, 12.9.4).
Third, as the plain language of the Term Sheet makes clear (PFOF § 14.3), and as the general counsels of both the Board of Governors and FRBNY admitted (PFOF §§ 14.0, 14.0(a)), there was no legal obligation to provide equity or voting control to Defendant until the September 22 Credit Agreement – at which time Defendant was firmly in control of AIG (PFOF § 15.0).
Defendant’s argument that Plaintiffs do not have legally cognizable rights in their equity and voting control or standing to recover for the harm done them is contrary to settled Delaware law (PCOL §§ 10.0), and this Court’s prior rulings (PCOL §§ 10.4.3, 10.6-10.7). Plaintiffs also
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have standing because Defendant’s exaction/taking of the Series C Preferred was directly targeted at Plaintiffs and expressly designed to take from Plaintiffs their voting rights and the ability to benefit from AIG’s recovery (PFOF §§ 17.6-17.9, 26.2, 26.3, 28.0; see also infra §§ I.A.1, II.B.4).
It is now undisputed that the Series C Preferred stock that Defendant exacted/took had a fair market value of at least $23 billion to $58.7 billion depending on when the exaction/taking is found to have occurred (PFOF § 37.4; infra § IV). However, Defendant argues that to the extent the value of the preferred stock was based on the liquidity provided AIG in the Credit Agreement, Defendant was entitled to exact/take such value without Congressional authorization. With respect to Plaintiffs’ Illegal Exaction claim there is no precedential or policy support for such an argument (PCOL § 19.5; infra § IV.B.1), and Defendant provides none. With respect to Plaintiffs’ Takings claim, there is no precedential or policy support (PCOL § 19.1), and the cases Defendant relies on are wholly inapposite (see infra § IV.B.2).
Moreover, since Defendant was not entitled to demand and receive the Series C Preferred as consideration for a 13(3) loan, Defendant cannot take that consideration indirectly by offsetting its value against what the government illegally exacted/took (infra § VI.B.1).
After taking control of AIG in September 2008, Defendant used that control to engineer the reverse stock split of AIG’s common stock in June 2009, thereby taking from Plaintiffs their valuable right to block further dilution of their equity interests (infra § V.B). As a result of the reverse stock split, Defendant was later able to exchange its less valuable preferred stock for more valuable common stock (infra § V.E).
Plaintiffs seek over $40 billion in compensation for the damages they suffered as a result of the two takings/exactions: $35.4 billion for the Credit Agreement Class and $4.67 billion for the Stock Split Class (infra §§ IV.A, V.E). In addition, Plaintiffs seek pre-judgment interest to restore
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them to the position they would have been in if they had been paid on the dates of the takings.
