The AIG Trial: Act One

The New York Times (M. Kessler, A.I.G. Trial Witnesses Will Be Central Cast from 2006 Crisis, Sep. 30, 2014, at p. B9) gives us a sort of a blow-by-blow description of the opening day of the Starr International v. United States trial. If you are a takings junkie we do recommend it for your perusal for the contents of the respective opening statements.

What we find fascinating is that nowhere in the Times writeup is there any mention of the plaintiffs pursuing a taking theory, which is odd. Maybe they are, but you can’t tell from the way the NY Times describes the first day in court. The depiction of the core of the complaint is that by the use of draconian terms and usurious interest rates in the bailout contract that Uncle Sam imposed on AIG to save it from bankruptcy, AIG was unfairly treated as compared to all other bailed out banks et al. Uncle Sam, on the other hand, argues that this is rank ingratitude, if not outright chutzpa, because, whatever its terms, Uncle Sam rescued AIG from bankruptcy, and when the bailout was over, both AIG and Uncle made a bundle — AIG got a $182 billion bailout, and  Uncle Sam made $22 billion.

But money aside (for the moment at least) wasn’t there a taking of property when Uncle seized some 80 % of AIG’s voting stock, which enabled him to impose those draconian terms on AIG? Seems that way to us, even though there is a fly in AIG’s ointment — AIG consented to the deal. But that consent, argues AIG was coerced. Which brings to mind the implications of SCOTUS taking/exaction cases, like Nollan, Dollan and Koontz which spoke disapprovingly of overreaching government demands as “out and out extortion.”

But be that as it may, the way the Times describes it, from the defense point of view, it’s a case of ingratitude carried to the point of chutzpa on the part of the plaintiffs (who, according to the defense are trying to bite the hand that fed AIG when it was starving). From the plaintiffs’ point of view, it’s a case of an extortionate government overreaching both morally and legally since no law authorized its overreaching conduct — i.e., rescue is one thing, but extortion and grossly unequal treatment by the government is another.

But last time we looked, ingratitude is not a cause of action. Taking is.

Maybe, plaintiffs are staying away from a taking argument because they may win on it and then — believe it or not — they may not get paid. How can that be? When a taking occurs, just compensation is due and its measure is fair market value of what was taken. Here it would be the FMV of the stock that Uncle seized, but under black-letter eminent domain law, from that just compensation there would have to be deducted any special benefits that accrued to the taking claimant. And did that happen here? It would so appear since, as we noted, after the dust settled and AIG got bailed out by Uncle, eventually both of them made a bundle in profits. So the benefit and profit to AIG would have to be deducted from any losses claimed by it because of the stock seizure. Would that net amount be positive or negative? We don’t know and so far we haven’t noticed that the parties who have been quoted at length in the newspapers, are even aware of the offset-of-benefits rule. Come to think of it, we haven’t seen anybody talking about the measure of damages in this case. Maybe we are not as attentive as we think we are.

So stay tuned, folks, and see how it turns out. This case is bound to receive additional coverage because the list of witnesses who are about to testify includes such luminaries as former Treasury Secretary Henry M. Paulson, former president of the New York Fed, and Treasury Secretary Timothy F. Geithner, and — ta, da! — former Fed Chairman Ben S. Bernanke. What a cast! Describing the testimony of these guys while on the stand, under oath, should be journalistic catnip for the newspaper business sections.*

As far as we are concerned, and however this case turns out and on what theory, watching ueberlawyer Boies examine and cross-examine these worthies, should prove to be a show for which tickets would, or at least should, sell like hot cakes. The courtroom has been overflowing and remote TV coverage has been set up in other rooms — you take it from here.

 

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