Judge Won't Disarm Feds in AIG Bailout Suit

, The Litigation Daily

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Over the objections of Maurice "Hank" Greenberg and his all-star legal team, a judge will allow the U.S. government to raise various affirmative defenses to Greenberg's lawsuit challenging the constitutionality of the American International Group Inc. bailout.

In a four-page order issued on Friday, Judge Thomas Wheeler of the U.S. Court of Federal Claims refused to strike six of the government's affirmative defenses, including its argument that the bailout benefited AIG shareholders like Greenberg. Wheeler did, however, bar the government from arguing that it was prejudiced by Greenberg's supposed delay in bringing suit.

After his ouster from the company in 2005, Greenberg remained AIG's single largest shareholder. Through his holding company Starr International Company Inc., Greenberg sued the government in November 2011, alleging that its $182 billion takeover of AIG in 2008 was too onerous and unconstitutionally trampled on the rights of AIG shareholders. Starr is represented by a cast of heavy hitters, including David Boies of Boies, Schiller & Flexner and John Gardiner of Skadden, Arps, Slate, Meagher & Flom.

In its answer to Starr's complaint, the government raised seven related affirmative defenses. Through two of those defenses—"payment" and "contingent offset"—the government hopes to counter the notion that AIG overpaid for the government rescue. The government also argued that it was materially prejudiced by Greenberg's delay in filing suit, and that therefore his claims should be dismissed under the doctrine of laches.

In September, Starr's lawyers argued that most of the affirmative defenses, including payment and contingent offset, are only available against AIG, which isn't a party to the case. They also claimed that the government failed to show the sort of material prejudice needed to prevail on a laches defense.

Wheeler sided with Starr on the laches issue in Friday's ruling, but he allowed the rest of the defenses to go forward. "Allowing the government to put forth its affirmative defenses will create a more complete evidentiary record, and creating a record that reflects the full picture of what happened during the rescue of AIG outweighs any resulting marginal burden placed of Starr," the judge wrote.

In a separate order issued on Friday, Wheeler ruled that the government must turn over communications with its lawyers regarding whether the AIG bailout complied with the Federal Reserve Act. Siding with Starr's lawyers, Wheeler ruled that the government waived attorney-client privilege as to those communications by putting at issue its own awareness of the law.

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