DRR27, Here is the beginning of the defendant's response. I can also post this one in its entirety if any one wants it. It's 101 pages :)
DEFENDANT’S POST-TRIAL BRIEF IN RESPONSE TO PLAINTIFF’S POST-TRIAL PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW
Pursuant to this Court’s November 25, 2014 Order, defendant, the United States, respectfully submits the following response to the post-trial briefs of plaintiff, Starr International Company, Inc. (Starr).
INTRODUCTION
At trial, and again in its post-trial briefs, Starr failed to establish that the extraordinary assistance provided to AIG caused either a taking or an illegal exaction. Neither the facts nor the law support Starr’s claimed entitlement to a better deal. The Federal Reserve acted within its authority when it sought equity as part of the compensation for an $85 billion rescue loan. AIG’s board, in turn, represented the company’s shareholders when it voluntarily accepted the proposed offer. The Board of Governors only authorized five such rescue loans, with AIG receiving, by far, the largest package of Government assistance. This assistance saved AIG from failing. In contrast, more than 100,000 businesses filed for bankruptcy because they could not weather the financial storm. AIG’s only entitlement was to this same bankruptcy process, a process the company avoided only because of the discretionary assistance provided by the Government.
No. 11-779C
) (Judge Thomas C. Wheeler)
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This assistance both preserved AIG’s ability to operate as a going concern, and salvaged (indeed, greatly enhanced) the value of Starr’s AIG holdings. Because Starr failed to prove the necessary conduct and harm, the Court should reject each of Starr’s claims.
First, Starr has failed to show that the Federal Reserve Act (FRA) prohibited the rescue loan’s equity term. Congress provided that the Federal Reserve could offer to loan money under section 13(3) subject to such “restrictions” and “limitations” that the Federal Reserve, in its discretion, “may prescribe.” This broad language authorizes the Federal Reserve to prescribe loan conditions such as fees and equity. Further, Section 4(4) provided additional authority by granting reserve banks “such incidental powers as shall be necessary to carry on the business of banking within the limitations prescribed by this Act.”
Starr argues that reserve banks may only seek interest as consideration for a rescue loan. Section 13(3), however, contains no limitation whatsoever against including other consideration for a loan. Moreover, Starr cannot explain why the express power to impose “restrictions” and “limitations” excludes the power to condition a rescue loan on an equity term, or why requiring equity as consideration for a loan is not incidental to section 13(3)’s express lending power.
Starr offers no support for its dubious assumption that Congress intended to foreclose the Federal Reserve from tailoring its lending to the particular circumstances or, indeed, to hamstring the Federal Reserve from making loans that incorporate the same kinds of commercially reasonable provisions that exist in the private marketplace. Indeed, Starr’s reading of section 13(3) conflicts with the Federal Reserve’s practice in every “comparator rescue” that Starr relies upon, as each of these included consideration beyond interest. Finally, Starr’s argument that the Act prohibited equity consideration is further debunked by Congress’s review and acceptance of the equity
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term. In two enactments after the AIG rescue, Congress ratified the Federal Reserve’s conclusion that it could condition a rescue loan on the receipt of equity.
Second, Starr fails to explain why AIG’s entry into the rescue loan – with the equity term – was not voluntary. Under the Fifth Amendment, a plaintiff claiming a taking or illegal exaction in connection with a contract must demonstrate that the subject property was involuntarily included in the transaction. Here, AIG’s board of directors – duly elected by shareholders and independent from the Government – voluntarily accepted FRBNY’s loan offer because it served the shareholders’ best interests and was vastly better than the alternative. Starr’s initial briefing largely ignores this evidence.
Instead, Starr’s economic expert advanced the theory that – contrary to evidence and logic – the Government controlled AIG’s board without the Government owning a single share of AIG stock. Beyond its factual shortcomings, Starr’s theory of effective economic control is legally insufficient to prove duress. Under applicable law, only actual, exercised control could defeat the defense of voluntariness. The AIG board’s independence – both on September 16 and September 21 – defeats any claim by Starr against the United States for a taking or exaction arising out of the rescue.
Starr contends that AIG’s voluntary agreement is not dispositive because AIG’s shareholders did not voluntarily agree to the rescue or its terms. Although Starr’s years-long failure to challenge the loan should be considered acquiescence, the shareholders’ approval was never necessary for the loan. Under Delaware law, AIG’s board had the authority to agree to the rescue loan and to issue the promised equity. Certainly, the Fifth Amendment does not require the Government to obtain the permission of every corporate shareholder before the Government contracts with a corporation, whether to provide emergency lending assistance or otherwise.
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Third, Starr’s inability to prove economic harm independently dooms all of its claims. Takings and illegal exaction claims require showing that, but for the Government’s conduct, the plaintiff’s property would have been more valuable. Here, absent any action by the Government, AIG would have entered bankruptcy, and its common stock would have lost all or nearly all its value as a result.
Rather than explain how the rescue injured AIG or its shareholders, Starr seeks to change the subject. Specifically, Starr compares AIG’s rescue to those received by others, and to the rescue Starr would have preferred. These analyses are both legally irrelevant and factually incomplete. Starr fails to compare its rescue to the more than 100,000 businesses that – like AIG – faced bankruptcy in 2008 and 2009, and that – like AIG – had no entitlement to taxpayer assistance, but that – unlike AIG – failed without such extraordinary assistance. Such a comparison highlights the fallacy of Starr’s claims that AIG was “punished” and confirms why AIG’s board was not “coerced” to accept the rescue loan.
In another run at proving harm, Starr demands the return of what was “exacted” by the Government. Starr, however, cannot overcome the fact that no physical shares were taken or “exacted” from anyone – AIG’s shareholders owned the same number of shares before and after the rescue. Indeed, the rescue increased the value of those shares by billions of dollars; again, this fact defeats every effort Starr has made at proving injury.
Even if the Court were to find that the Federal Reserve exceeded its authority, that AIG’s board was coerced into accepting a rescue loan, and that Starr suffered actual harm, the Court still would have to resolve all of the following additional questions in Starr’s favor to hold the United States responsible for an illegal exaction: (1) that Congress enacted Section 13(3), not for the public’s benefit, but to protect borrowers and their shareholders from providing equity as
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consideration for a rescue loan; (2) that Starr has proved that its claims truly are direct and established separate and independent harm to shareholders; (3) that Starr did not waive its exaction claim by waiting to bring it until after enjoying the benefit of multiple rescues; and (4) that even if the equity term was illegal, the proper remedy is to simply excise it from the transaction even though the evidence clearly established that the Federal Reserve would not have rescued AIG in the absence of that term. Starr’s inability to satisfy any – let alone all – of these preconditions ends its equity claim.
Starr’s Stock Split Claim fares no better. Starr argues that the Government originated, orchestrated, or compelled the stock split transaction but has identified no facts to support this theory. The undisputed evidence shows that AIG’s board proposed the transaction to avoid delisting by the NYSE; AIG’s common shareholders – including Starr – approved the transaction, presumably for the same reason. That should put an end to Starr’s claim. Starr’s efforts to tie the 2009 split (and the 2009 Stock Split Class) to the 2011 recapitalization are meritless. As Starr admits, the stock split had no harmful effect in 2009. Similarly, the 2011 recapitalization did not harm any shareholders, let alone the June 2009 shareholders. Certainly, Starr cannot explain why AIG’s 2009 shareholders should recover for an economic event that allegedly affected AIG’s very different 2011 shareholders.
At bottom, Starr demands that American taxpayers provide an additional $40 billion to AIG’s shareholders, on top of the extraordinary and unprecedented assistance that they have already received, because Starr believes itself entitled to be rescued on even more generous terms. This would impose a multi-billion dollar loss upon taxpayers for having saved AIG and its shareholders from catastrophe. As Starr’s and AIG’s executives acknowledged, AIG’s investments placed the company in a position where it would have failed without unprecedented
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Federal Reserve financing. Starr was not entitled to any rescue, and nothing Starr alleges or argues can convert the rescue it received into a cognizable harm warranting redress. Starr’s claims are erroneous and unjust. The Court should deny Starr’s claims and grant judgment in favor of the United States.
