JJ8, I agree. Here are some "cliff notes" from each response (table of contents.)
Plaintiff's Table of Contents
TABLE OF CONTENTS
PRELIMINARY STATEMENT ................................................................................................. 1 STATEMENT OF FACTS........................................................................................................... 5 I. STANDING................................................................................................................................ 8
A. DEFENDANT’S ARGUMENT THAT PLAINTIFFS HAVE NO
LEGALLY COGNIZABLE PROPERTY INTEREST IN THE EQUITY INTEREST AND VOTING CONTROL ASSOCIATED WITH THEIR
STOCK IS CONTRARY TO SETTLED DELAWARE LAW AND FOUR DECISIONS BY THIS COURT. ..................................................................................... 8
1. Plaintiffs Were Specifically Targeted by Defendant. ....................................... 8
2. This Court Has Ruled on Four Separate Occasions that Plaintiffs Have
Standing Based on Cognizable Property Rights (see Starr, 106 Fed. Cl. at
62; Starr, 107 Fed. Cl. at 377; Starr, 111 Fed. Cl. at 481; Starr, 112 Fed.
Cl. at 604)................................................................................................................ 9
3. This Court’s Rulings Are Based on Settled Delaware Law............................ 10
4. In Rearguing That Defendant Had No Duty to Plaintiffs Because
Defendant Was Not Yet a Shareholder When It Exacted/Took Plaintiffs’
Equity and Voting Power, Defendant Ignores Its Fifth Amendment Duties
and Disregards the Admonition of Delaware Courts to Focus on the
Substance – Not the Form – of a Transaction....................................................... 12
a. The Government had a Fifth Amendment duty to Plaintiffs
regardless of duties flowing from control. ................................................ 12
b. In any event, the relevant date is September 22 when the exaction/taking took place (PFOF § 14.0) and Defendant clearly controlled AIG on that date (PFOF §§ 15.0, 19.0). ................................. 13
5. Defendant’s Reliance on the Business Judgment Rule Is Misplaced
Where, As Here, Plaintiffs’ Claim Is Against Defendant and Not the AIG
Board and Defendant Was in a Controlling Position............................................ 15
B. DEFENDANT’SARGUMENTTHATTHISCOURTLACKS
JURISDICTION OVER PLAINTIFFS’ ILLEGAL EXACTION CLAIM
IGNORES CONTROLLING PRECEDENT AND THIS COURT’S PRIOR RULINGS. ....................................................................................................................... 16
II. AUTHORITY ......................................................................................................................... 17
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A. DEFENDANT’S ARGUMENT THAT IT WAS AUTHORIZED TO
DEMAND 79.9% OF PLAINTIFFS’ EQUITY AND VOTING CONTROL
AS CONSIDERATION FOR A 13(3) LOAN IS CONTRARY TO THE
PLAIN LANGUAGE OF THE STATUTE, THIS COURT’S PRIOR
RULINGS, THE STATUTE’S CONTEXT AND LEGISLATIVE HISTORY,
AND DEFENDANT’S OWN PRIOR INTERPRETATION AND IMPLEMENTATION OF 13(3). ................................................................................... 17
1. Defendant’s Papers Ignore the Plain Language of the Federal Reserve
Act Which Limits the Consideration for a 13(3) Loan to an Interest Rate........... 17
2. Defendant’s Papers Ignore This Court’s Prior Ruling That the Only Consideration for a 13(3) Loan is an Interest Rate. .............................................. 18
3. Defendant’s Papers Ignore the Legislative History of the Relevant Statutes.................................................................................................................. 18
4. Defendant’s Papers Misstate Its Prior Interpretation of 13(3) and
Ignore Its Actual Statements Concerning, and Implementations of, 13(3)........... 18
5. Defendant’s Concession in Its Post-Trial Submissions that “FRBNY
Cannot Invest in a Distressed Company by Injecting New Equity Capital
Through the Purchase of Stock” (DFOF ¶ 211) Is Dispositive. ........................... 21
B. DEFENDANT’SCONSTANTLYSHIFTINGARGUMENTSFORTHE AUTHORITY TO DEMAND EQUITY ARE INTERNALLY
INCONSISTENT AND, AGAIN, CONTRARY TO THE STATUTE’S
PLAIN LANGUAGE, THIS COURT’S RULINGS, THE STATUTE’S
CONTEXT AND LEGISLATIVE HISTORY, AND DEFENDANT’S OWN
PRIOR ACTS AND STATEMENTS. ........................................................................... 21
1. Defendant’s Initial Argument Was That Authority to Demand Equity
Was an Incidental Power. ..................................................................................... 21
a. “Incidental” powers cannot add new powers...................................... 22
b. The National Bank Act and precedents under it refute rather
than support Defendant’s incidental powers analysis. .............................. 22
2. In Its August 2012 Motion for Reconsideration, Defendant Argued for
the First Time That the Reference to “Limitations” and “Restrictions” in
13(3) Was an Express Authorization to Demand Equity...................................... 25
a. Defendant’s novel assertion that its demand for 79.9% equity
and voting control was a “limitation” or “restriction” on the
interest rate charged is contrary to the plain language of the statute. ....... 25
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b. Defendant’s “limitations” and “restrictions” argument is also inconsistent with Defendant’s uniform prior interpretation and implementation of 13(3). .......................................................................... 26
c. Defendant’s argument that Plaintiffs’ reading of Section 13(3)
would render the final sentence of Section 13(3) “meaningless”
(DCOL at 80-81) is wrong........................................................................ 26
d. In fact, it is Defendant’s argument that, if accepted, would
render provisions of 13(3) meaningless. ................................................... 27
e. Defendant’s argument requires a rewriting of the statute. .................. 27
3. Defendant Now Argues That a Previously Unknown and Still
Undefined “Congressional Policy” Authorizes It to Demand Equity. That Argument Is Contrary to 13(3)’s Plain Language and Consistent Interpretation......................................................................................................... 29
4. The Harsh Terms of the AIG Loan Were Adopted to Punish AIG and
Its Shareholders (See PFOF § 26.2), Not For Any Other Reason......................... 30
5. There Is No Possible Policy Basis for Imposing Punitive and
Discriminatory Terms Without Any Investigation, Analysis, or Findings........... 31
6. Defendant’s Asserted “Moral Hazard” Policy Is Foreign To The
Statute, Unmentioned In The Board Of Governors Minutes, and Is Simply
a Rephrasing of Defendant’s Punitive Policy. ...................................................... 33
a. Defendant’s claim that it needed to address moral hazard
concerns is contradicted by prior statements of Defendant’s top policymakers. ............................................................................................ 33
b. Moreover, Defendant’s claim that the equity term was
necessary to address moral hazard does not make economic sense.......... 34
c. Singling out AIG for punishment was inconsistent with how Defendant treated other firms and does not reflect a reasoned
policy judgment. ....................................................................................... 35
7. Defendant’s Assertion that the Risk of the Credit Facility Was High Is Irrelevant and Contradicts Defendant’s Contemporaneous Analysis and
Sworn Testimony. ................................................................................................. 37
a. The risk of the AIG loan is irrelevant to the exaction/taking of equity......................................................................................................... 37
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b. Defendant’s Assertion That the Credit Facility Was
“Enormously Risky” (DFOF ¶ 139) Is Contrary to the Testimony
of Its Senior Officials................................................................................ 37
c. Defendant’s Assertion that the Credit Facility Was
“Enormously Risky” (DFOF ¶139) Is Contrary to Its Lending
Authority Under Section 13(3). ................................................................ 37
d. Defendant’s Assertion That AIG’s Collateral Was “Highly
Unusual” Is Contrary to the Testimony of Its Senior Officials. ............... 38
e. Defendant incorrectly asserts that “President Geithner made
clear to Congress, long after FRBNY had extended the AIG loan,
his continuing belief that the Federal Reserve was taking
substantial risk in lending to AIG.” DFOF ¶ 150 (citing PTX 564
at 28, 42, 125). .......................................................................................... 39
f. Defendant incorrectly asserts (DFOF ¶ 143) that a September
16th analysis of the value of AIG’s equity (DX 415) – which was
never pledged as collateral (JX 95 at 1) – has bearing on the risk of
the Credit Facility, which was secured by AIG’s underlying assets......... 39
g. Defendant incorrectly asserts (DFOF ¶ 160) that the valuations
it relied upon “assumed that AIG would not lose significant
business despite AIG’s financial decline.” ............................................... 40
h. Defendant fails to mention that its proffered “market
indicators” (DFOF ¶¶ 167-171) relate to the perceived risk of
AIG’s unsecured debt before AIG received liquidity from
Defendant in the form of secured debt...................................................... 40
8. All of Defendant’s “Policy” Arguments Ignore that Defendant Had No Authority to Demand Any Compensation for a 13(3) Loan Other Than an
Interest Rate, or to Fix That Interest Rate for Any Purpose Other Than “Accommodating Commerce and Business” (12 U.S.C. § 357). ......................... 41
9. Defendant’s Papers Ignore that FRBNY Lacked Authority to Change
the Terms Approved by the Federal Reserve Board of Governors....................... 41
10. Subsequent Acts of Congress Did Not “Ratify” Defendant’s
Interpretation of 13(3)........................................................................................... 43
11. Holding the Shares in a Trust Did Not Cure Defendant’s Lack of
Authority. .............................................................................................................. 43
a. First, Defendant cannot use a trust to accomplish indirectly
what Congress did not authorize it to do directly. .................................... 43
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b. Second, regardless of whether the Trust held the preferred
stock for a time, Defendant both initially acquired and ultimately
sold the equity interest. ............................................................................. 44
c. Third, the Trust violated New York law............................................. 44
d. Fourth, the Trust was an instrumentality of the Defendant. ............... 45
III. DEFENDANT’S AGREEMENT DEFENSE..................................................................... 45
A. A PLAINTIFF’S AGREEMENT TO PROVIDE PROPERTY
DEMANDED BY THE GOVERNMENT IS NOT A DEFENSE TO AN
ILLEGAL EXACTION CLAIM. .................................................................................. 45
1. In General a Plaintiff’s Voluntary Agreement Is Not a Defense to an
Illegal Exaction Claim. ......................................................................................... 45
2. As the Court in Alyeska Notes, the Only Cases in Which
“Voluntariness” Has Been Allowed as a Defense Are Certain
Overpayment Cases. ............................................................................................. 47
3. Defendant’s Argument That Plaintiffs’ Illegal Exaction Claim Is
Barred Because 13(3) Was Not “Intended to Benefit” Borrowers Is Wrong
Both as a Matter of Illegal Exaction Law and as an Understanding of 13(3)...................................................................................................................... 47
a. The “intended to benefit” rule is just one way in which a
voluntary agreement defense can be inconsistent with the
Congressional intent underlying a statutory provision. ............................ 48
b. In any event, Section 13(3) was enacted to benefit solvent corporations, partnerships, and individuals who were experiencing liquidity shortfalls during a financial crisis. ............................................. 49
4. Defendant Cannot Distinguish Suwannee and Similar Cases......................... 51
a. Defendant’s argument that Suwannee is distinguishable
because the plaintiff there was already subject to the Government’s regulatory powers (DCOL at 106-07) fails both on the law and the
facts. .......................................................................................................... 51
b. Defendant’s second basis for distinguishing Suwannee, that the
statute at issue provided no discretion to the government officials
as to whether to award the benefit (DCOL at 107) misstates
Suwannee and the underlying statute........................................................ 51
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B. INANYEVENT,PLAINTIFFSDIDNOT“VOLUNTARILY”AGREE
TO THE EXACTION/TAKING OF THEIR EQUITY AND VOTING
CONTROL. ..................................................................................................................... 52
1. Both Edmonston and Rough Diamond Make Clear That Only “Purely Voluntary” Agreement Can Ever Bar Recovery. Edmonston, 181 U.S. at 515......................................................................................................................... 52
2. AIG’s Undisputed Need for the Liquidity with Respect to Which
Defendant Had a Monopoly, by Itself Makes Edmonston and Rough
Diamond Inapplicable........................................................................................... 52
C. PLAINTIFFS DID NOT “VOLUNTARILY” AGREE TO THE
EXACTION OR TAKING OF THEIR EQUITY AND VOTING CONTROL BECAUSE THEY WERE NOT PARTIES TO THE CREDIT
AGREEMENT. ............................................................................................................... 52
D. THERE WAS NO VOLUNTARY AGREEMENT BECAUSE AIG WAS UNDER DURESS. .......................................................................................................... 53
1. The Standard for Duress. ................................................................................ 53
2. AIG Had No Realistic Choice......................................................................... 56
3. Defendant Contributed to AIG’s Distress by Defendant’s Threats and
Change of Position on September 22.................................................................... 56
4. Defendant Contributed to AIG’s Distress by Taking Punitive Action
Without Due Process and Discriminating Against AIG for Political
Purposes. ............................................................................................................... 57
5. Defendant Contributed to AIG’s Distress by Abusing Its Monopoly
Power to Obtain a Benefit to Which It Is Not Entitled. ........................................ 57
6. The A&D Case Supports a Finding of Duress. ............................................... 60 E. THEREWASALSONOVOLUNTARYAGREEMENTBECAUSE
DEFENDANT CONTROLLED THE TRANSACTION. ........................................... 60
1. The Relevant Date Is September 22, the Date of the Credit Agreement. ....... 60
2. The Fact That the September 16 Term Sheet Expressly Provides It Is
Not Legally Binding Is Dispositive That the Taking Did Not Occur Then.......... 61
3. Prior to the Execution of the Credit Agreement, Defendant Loaned
Money to AIG Pursuant to Collateralized Demand Notes, Not a Term Sheet...................................................................................................................... 63
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4. There Was No “Meeting of the Minds” on September 16, 2008 as to
the Material Terms of Defendant’s Loan to AIG.................................................. 63
a. Neither the Board of Governors Nor AIG’s Board Ever Saw or Approved the Version of the Term Sheet Defendant Claims Was Binding...................................................................................................... 64
b. Both Parties Believed The Form of Equity Would Be Warrants
on September 16, 2008. ............................................................................ 65
5. Defendant Contemporaneously Recognized That There Was No
Binding Agreement on September 16................................................................... 66
6. Defendant Was Firmly in Control of AIG on September 22. ......................... 67
IV. DAMAGES............................................................................................................................ 67
A. BOTH PLAINTIFFS’ AND DEFENDANT’S EXPERTS AGREE THAT
THE 79.9% EQUITY INTEREST ACQUIRED BY DEFENDANT HAD A
FAIR MARKET VALUE OF AT LEAST BETWEEN $23 BILLION AND
$58.7 BILLION DEPENDING ON THE DATE SELECTED. .................................. 67
1. Plaintiffs Are Entitled to the Fair Market Value of What Defendant Took/Exacted Measured at the Time of the Taking/Exaction. ............................. 67
2. Defendant’s Experts Testified That AIG’s Market Capitalization on a
Fully Diluted Basis Based on NYSE Prices Represented Its Fair Market Value..................................................................................................................... 67
3. Based on NYSE Prices, the 79.9% Equity Interest Had a Value of
Between $26.7 Billion and $58.7 Billion Depending on the Date Selected Between September 17 and September 24............................................................ 67
4. Defendant, AIG, and Their Advisors Contemporaneously Calculated
the Value of the 79.9% Equity Interest as of September 16 and 17 at
Between $23 Billion and $42 Billion. (See PFOF § 37.2)................................... 68
5. Because of the “Unusual and Exigent” Circumstances During
September 2008, NYSE Prices Actually Understated the Fair Market
Value of AIG......................................................................................................... 69
a. Defendant’s expert admitted that stock market prices only
reflect fair market value in “a fair and efficient market with all information available.” (Saunders: Tr. 8416:14-15; id. 8415:25–
8416:13). ................................................................................................... 69
b. As Dr. Saunders admitted, a “fair market price” of equity is a price that “reflects its underlying fundamental intrinsic value” (Tr.
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8416:8-11). Stock market prices only reflect fair market value in a
“fair and efficient market with all information available” (Tr. 8416:14-15)............................................................................................... 69
c. Defendant’s experts also admitted that they did nothing to
calculate the fair market value of the 79.9% equity interest except
to look at NYSE prices. (Saunders: Tr. 8416:17 – 8417:14; see
also DFOF ¶ 401). .................................................................................... 69
B. THEREISNOLEGALORFACTUALBASISFORDEFENDANT’S ASSERTION THAT PLAINTIFFS ARE NOT ENTITLED TO RECOVER
THE FAIR MARKET VALUE OF WHAT DEFENDANT TOOK/EXACTED.......................................................................................................... 70
1. Defendant’s Damages Argument That It Can Deduct from Plaintiffs’ Damages the Benefits Created by the 13(3) Loan Depends on the False
Legal Premise That It Was Entitled to Demand Equity as Compensation
for the 13(3) Loan. ................................................................................................ 70
2. Nor Is There Any Basis in Determining Just Compensation for an
Actual Taking to Reduce the Value of Property Taken by the Government
(in this Case, the 79.9% Equity Interest) Based on the Benefit to the
Plaintiff of Other Government Actions (in this Case, the 13(3) Loan). ............... 71
a. Regulatory takings cases are irrelevant for this purpose. ................... 71
b. “Hold-up” cases are irrelevant. ........................................................... 72
c. Brown v. Legal Foundation of Washington, 538 U.S. 216
(2003) is similarly irrelevant..................................................................... 73
3. It is Undisputed That Even If Defendant Had Been Authorized to
Exact/Take Equity as Compensation for a 13(3) Loan, Plaintiffs Would
Suffer Direct Economic Loss If The Series C Preferred Was Issued for
Less Than Fair Value............................................................................................ 74
4. Because AIG Already Paid (or Even Overpaid) Fair Value for the
Credit Facility Through Its Secured Promise and Ultimate Repayment of
All Borrowings Plus 14% Interest and Fees (PFOF § 37.7), Plaintiffs Did
Not Receive Compensation for the 79.9% Equity and Voting Interests
Taken by Defendant (PFOF §§ 37.4, 37.6)........................................................... 74
5. Defendant’s Damages Argument Also Improperly Assumes That
AIG’s Opening Stock Price on September 16 Represented Its Intrinsic or
Fair Market Value................................................................................................. 77
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6. Defendant Waived Its Argument for Off-Setting Benefits Because
Such Benefits Are An Affirmative Defense that Must Be Pled in Physical
Takings Cases. ...................................................................................................... 80
7. Even if Defendant Were Legally Entitled to Reduce the Value of the
Equity Exacted/Taken by Off-Setting Benefits, Defendant Has Failed to
Establish These Benefits. ...................................................................................... 80
a. Defendant bears the burden of proving how much Plaintiffs’
property would have been affected in its hypothetical but-for
world. ........................................................................................................ 80
b. Defendant’s off-set hypothetical rests on the incorrect
assumption that AIG would have filed for bankruptcy if Defendant
had not taken Plaintiffs’ property. DFOF ¶ 350. ..................................... 80
c. Defendant also cites no reliable evidence concerning the value
of Plaintiffs’ property in its hypothetical bankruptcy world and
ignores contrary evidence. ........................................................................ 81
C. DEFENDANT’S PLEAS FOR A NEW EXCEPTION TO ILLEGAL EXACTIONS/TAKINGS LIABILITY BASED ON ITS INTENT NOT TO
PAY JUST COMPENSATION SHOULD BE DENIED............................................. 84
1. Defendant’s Contractual Intent Cannot Bind Plaintiffs. ................................. 84
2. Defendant Cites No Authority Supporting Its Position That Its or
AIG’s Intent Can Justify an Illegal Exaction/Taking. .......................................... 84
3. Defendant’s Intent Cannot Permit It To Do What Congress Has Not Authorized............................................................................................................. 84
4. Although Irrelevant to This Proceeding, Any Claim Defendant May
Have Against Non-Party AIG Under Section 8.12 Is Likely to Fail. ................... 85
D. PLAINTIFFS CORRECTLY CALCULATE PREJUDGMENT
INTEREST. ..................................................................................................................... 85
V. REVERSE STOCK SPLIT ................................................................................................... 87
A. THE STOCK SPLIT CLASS HAD A COGNIZABLE PROPERTY
INTEREST IN THE RIGHT TO PREVENT DEFENDANT’S FURTHER DILUTION OF THEIR SHARES OF AIG COMMON STOCK. ............................. 87
1. Both Delaware Law and the Walker Consent Order Establish the Stock
Split Class’s Property Interest in Preventing Dilution of Their Shares. ............... 87
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2. The Walker Representations and Consent Order Also Establish
Plaintiffs’ Property Interest in the Right to Prevent Further Dilution. ................. 88
3. Delaware’s Doctrine of Independent Legal Significance Does Not
Undermine Plaintiffs’ Property Interests. ............................................................. 90
B. THERSSCONSTITUTEDATAKINGOFPLAINTIFFS’PROPERTY INTERESTS. ................................................................................................................... 91
1. Defendant Structured the Reverse Stock Split to Monetize Its Preferred
Stock Without A Class Vote of Common Shareholders....................................... 91
2. AIG’s Delisting Threat Cannot Explain The Decision To Structure The Reverse Stock Split To Reduce Only Issued, But Not Authorized, Shares
By A Ratio Of 20:1. .............................................................................................. 93
3. Defendant’s Control Of AIG During 2009-2011 Is Independently
Sufficient To Characterize The RSS As A Government Act Requiring The Payment Of Just Compensation. See PCOL § 14.9. ............................................ 94
C. DEFENDANT’SRSSCONSTITUTEDANILLEGALEXACTION.................96
D. PLAINTIFFS HAVE ESTABLISHED DAMAGES RESULTING FROM
THE REVERSE STOCK SPLIT................................................................................... 97
xi
Cases
Defendant's Table of Contents
TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... v
INTRODUCTION .......................................................................................................................... 1
I. The Federal Reserve Acted Within Its Legal Authority In Conditioning Its
Rescue Loan On AIG’s Agreement To Convey Equity............................................................ 6
A. Section 13(3)’s Language Demonstrates That Interest Is Not The Only
Permissible Form Of Consideration For A Rescue Loan ................................................... 7
B. The Court Should Affirm The Board Of Governors’ Exercise Of Its
Congressionally Authorized Judgment ............................................................................. 11
C. TheChallengedEquityTermAlsoReflectedAValidExerciseOf
FRBNY’s Incidental Powers............................................................................................. 13
D. Congress Ratified The Federal Reserve’s Authority To Condition Lending
On The Conveyance Of Equity......................................................................................... 15
E. In Any Event, Starr’s Illegal Exaction Claim Fails Because Section 13(3)
Is Not Money-Mandating.................................................................................................. 19
II. UnableToEstablishThatTheFederalReserveExceededItsAuthority,Starr
Asserts Irrelevant And Incorrect Arguments To Support Its Illegal Exaction Claim....................................................................................................................................... 20
A. Starr’s Arguments Regarding Authority To Hold Equity And Attacks On
The Trust Are Irrelevant And Incorrect ............................................................................ 21
1. Neither FRBNY Nor Treasury Ever Held The Series C Preferred
Shares, Nor Would Any Law Have Prevented Them From Holding
Equity .......................................................................................................................... 21
2. The Credit Agreement Used An Independent Trust To Address Policy Considerations............................................................................................................. 23
3. The Trust Was A Valid And Appropriate Owner of AIG's Equity ............................ 26
B. Starr’s Claim That The Board Of Governors Did Not “Approve” The
Credit Agreement Misapprehends The Requirements Of Section 13(3) .......................... 27
C. TheAIGLoan’sInterestRateSatisfiedSection13(3).....................................................29
D. Starr’s Arguments Concerning “Punishment” Are Irrelevant And Incorrect
Because The Terms Of The Loan Were Not Punishment For Wrongdoing..................... 31
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E. The Loan Terms Were Justified, And The Equity Term Was Not An
Extraneous Demand .......................................................................................................... 33
1. The Challenged Loan Terms Were Directly Related To The Risks And
Policy Implications Of Lending To AIG .................................................................... 33
2. The Evidence Contradicts Starr’s Assertion That The AIG Loan Was
Not Risky .................................................................................................................... 35
F.
........................... 38
III. The Penn Central Analysis Applies To Starr’s Takings Claim.............................................. 39
A. Starr Cannot Claim A Physical Taking Because Starr Has No Property That Was Physically Taken ............................................................................................................... 40
B. Starr Cannot Establish An "Unconstitutional Conditions" Taking ................................... 42
1. The Court Dismissed Starr’s Unconstitutional Conditions Claim.............................. 43
2. Even If The Nollan/Dolan Test Applied Outside Of The Land Use
Context, Starr’s Claim Fails Because The Government’s Actions Did
Not Impose Any Regulatory Or Police Power Restrictions That Would
Affect AIG’s Voluntary Choice.................................................................................. 45
3. Even If The “Unconstitutional Conditions” Doctrine Applied, The
Equity Term Was Not An Unconstitutional Condition............................................... 47
IV. No Taking Or Exaction Occurred Because AIG Acted Voluntarily And
Without Duress ....................................................................................................................... 50
A. AIG’s Board Voluntarily Accepted The Rescue, And The Government
Did Not Act Wrongfully Or Coercively ........................................................................... 50
1. The Unrebutted Testimony Of The Allegedly Coerced Individuals
Refutes Starr’s Argument That AIG’s Board Was Coerced....................................... 51
2. The Government Did Not Act Wrongfully Or Coercively ......................................... 52
3. Starr Offers No Evidence That An “Arm’s Length” Transaction Would
Have Taken Place On Different Terms....................................................................... 54
4. Starr’s Failure To Timely Challenge The AIG’s Board’s Agreement
Precludes A Finding Of Duress .................................................................................. 55
B. AIG Voluntarily Promised Equity Equivalent To Common Stock On
September 16, 2008, And Implemented That Promise Through The Credit Agreement......................................................................................................................... 56
Starr’s Equal Protection Claim Already Has Been Dismissed, And Section
?13(3) Does Not Require Lending On Uniform Terms And Conditions
?ii
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1. On September 16, 2008, FRBNY And AIG's Board Agreed To Equity In A
Form To Be Determined, Not Warrants ....................................................................................... 56
2. The Credit Agreement Implemented The September 16, 2008 Agreement................................................................................................................... 59
C. It Is Contrary To Precedent And Logic For Starr To Argue That The
Government Controlled AIG After AIG’s September 16 Resolution But
That The Resolution Did Not Create An Obligation For Equity ...................................... 59
D. The AIG Shareholders’ Consent To The Equity Term Was Not Required ...................... 62
E. The AIG Board’s Voluntary Agreement Vitiates Starr’s Illegal Exaction Claim................................................................................................................................. 65
V. Starr’s Failure To Demonstrate Economic Loss Is Fatal To Both Its Takings
And Exaction Claims .............................................................................................................. 68
A. Regardless Of How Starr Characterizes Its Takings Claim, Starr Must
Demonstrate That The Class’s Shares Would Have Had Greater Value In
The Absence Of Any Government Rescue....................................................................... 69
B. AIG’sPost-RescueStockPriceDoesNotReflectWhatWasTakenOr
Exacted Because It Does Not Measure Any Loss Experienced By The
Class Members.................................................................................................................. 71
1. Starr Had No Property Interest In A Rescue Without An Equity Term ..................... 72
2. Starr Is Not Entitled To A Recovery Reflecting Value Created By The
Rescue ......................................................................................................................... 73
3. Starr Cannot Recover Value Created By The Government By Arguing
That The Rescue Merely “Restored” AIG’s “Intrinsic Value”................................... 74
4. Starr Cannot Recover The Value Created By The Rescue By Treating
The Provision Of Liquidity That Saved AIG As Distinct From The
Government’s Receipt Of Equity In AIG ................................................................... 77
C. Starr’s Failure To Prove Its Shares Would Have Had Value In The
Absence Of The Government Rescue Defeats Its Exaction Claim As Well .................... 78
D. Starr Cannot Shift Its Burden Of Proving That The Rescue Loan Harmed
The Class........................................................................................................................... 81
VI. Starr Has Failed To Provide The Evidence Identified By The Court As
Necessary To Support Standing To Bring A Direct Claim..................................................... 82
A. Starr Has Failed to Show That Its Claim Is Not Derivative ............................................. 83 iii
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B. EvenIfStarr’sClaimIsBothDerivativeAndDirect,StarrHasFailedTo
Allocate Economic Harm To The Claim’s Direct Aspect ................................................ 85
VII. Starr Has Failed To Establish Its Reverse Stock Split Claim ........................................... 86
A. Neither Delaware Law Nor The Walker Order Granted AIG’s Common
Shareholders The Right To Avoid Dilution Of Their Shares ........................................... 86
1. Section 242(b)(2) Grants The Right To A Class Vote In Limited
Circumstances And Confers No General Right To Avoid Dilution ........................... 86
2. The Walker Order Did Not Grant Common Shareholders The Right To
A Separate Class Vote on Dilutive Transactions........................................................ 88
3. Starr Has Not Presented Any Evidence That The Reverse Stock Split
Was Designed To Evade Common Shareholders’ Rights .......................................... 89
B. Starr’sInvocationOfEntireFairnessReviewUnderDelawareLawIs
Erroneous .......................................................................................................................... 91
C. Starr Has Failed To Prove Its Allegation That The Government
“Engineered” The Reverse Stock Split ............................................................................. 92
D. Starr Failed To Demonstrate Economic Harm From The Reverse Stock
Split ................................................................................................................................... 94
VIII. Starr’s Contentions Regarding Maiden Lane III Are Irrelevant And
Incorrect ............................................................................................................................ 95
IX. Starr Is Not Entitled To Attorney Fees, Expert Witness Fees, And
Disbursements For An Illegal Exaction.................................................................................. 97
