AIG’s Post-Bailout Tax Suit Faces Jury Trial

MANHATTAN (CN) — Since receiving a $182 billion bailout, the American International Group has been roundly mocked for lawsuits demanding more government money, but the insurer's lawyers agreed on Friday to let a jury decide the last of these cases.

As U.S. District Judge Louis Stanton noted at a hearing this morning, AIG did not have much of a choice.

The government already filed a demand for a jury trial on AIG's lawsuit from six months after its bailout, which seeks a $306 million refund over tax credits from seven foreign transactions in Ireland, France, New Zealand and elsewhere during the mid-1990s.

The lawsuit has been on a four-year pause since early 2013, when Stanton refused AIG's motion for summary judgment, leading to a series of appeals.

Friday morning's proceedings ending that hiatus opened informally around a conference table, where Judge Stanton presided in a suit instead of his judicial robes.

In a faux-naive tone, Stanton asked the lawyers: "What have you been up to since I saw you last?"

Quite a lot, as it turned out.

Since the parties last met, two other attempts by AIG's ex-CEO Maurice "Hank" Greenberg — through AIG's shareholder Starr International Co. — to recover $40 billion in damages over the terms of the government's bailout crashed and burned. (AIG itself was not a plaintiff these lawsuits, but a storm of public outrage followed a New York Times report from 2013 that its board considered joining them.)

The Federal Reserve conditioned AIG's rescue on it holding a roughly 80 percent stake in the company.

In a 2011 New York lawsuit, Starr called that requirement "discriminatory, unprecedented and inconsistent," but the Second Circuit found that the "uniquely federal interests at stake in stabilizing the national economy" outweighed the Delaware-based insurer's claims under state law.

But Greenberg's other lawsuit survived at the U.S. Court of Federal Claims, where a judge last year handed the ex-CEO what he reportedly called a "moral victory."

In June 2015, Judge Thomas Wheeler called the government's demand of a majority stake illegal, but he refused to award damages because the bailout saved AIG from bankruptcy.

Back in New York, the Second Circuit upheld Stanton's ruling in the tax-credit case, holding that a reasonable jury could decide that AIGs foreign transactions were "most appropriately characterized as 'shams' ... taken to avoid taxes."

Most of this backstory went unstated during Friday's conference, except in a passing remark by Assistant U.S. Attorney Joseph Cordaro.

"There's been a lot of water under the bridge since that last appearance," he said.

Since the remaining case involves seven complicated financial transactions around the globe, Stanton urged the parties to simplify the issues — quoting 19th century attorney and senator Daniel Webster.

"The power of clear statement is the great power of the bar," Stanton said.

AIG's lawyer Matthew Schwartz, from the firm Boies, Schiller & Flexner LLP, said that the case may not make it to trial because of "productive" settlement talks that are still "far from being done."

Expressing whimsical disappointment, Stanton replied: "We are here to try cases, and we often get derailed by settlements."

"My duty is to stress the value of a trial, publicly, professionally, and as a way of filling in time," he quipped again later.

A final pre-trial conference has been scheduled for March 24, 2017 at noon.

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