Shareholders Certified to Sue AIG Over Bailout

(CN) - A federal judge certified two classes challenging the government's bailout of American International Group at the brink of the 2008 financial collapse.

AIG, a financial services company, faced "significant liquidity pressures" in the summer of 2008, according to a report from the Federal Reserve, as U.S. financial and credit markets began to sag under the weight of subprime mortgage delinquencies. Failure seemed imminent after similar problems felled the investment bank Lehman Brothers Holdings.

Many feared, however, that AIG's widespread dealings with financial institutions would cause unsustainable ripples beyond Wall Street. The U.S. government in turn gave AIG an $85 billion revolving credit line in exchange for a 79.9 percent equity stake.

Meanwhile federally appointed trustees also oversaw a 1-for-20 reverse stock split approved by AIG's board of directors.

Starr International, an insurance holding company and AIG shareholder, claimed in a subsequent lawsuit that the actions constituted the "taking" of shareholder property in violation of the Fifth Amendment to the U.S. Constitution.

Late last year it moved to certify two classes, one for each of the government's actions, a "credit agreement" class and a "stock split" class.

Judge Thomas Wheeler of the U.S. Court of Federal Claims granted certification Monday after finding that Starr had satisfied the five necessary criteria: numerosity, commonality, typicality, adequacy and superiority.

As to superiority, Wheeler noted that a cost-benefit analysis "tips decidedly in favor of class certification."

Estimates have put the number of plaintiffs in the tens of thousands scattered widely geographically, making class certification "by far the most efficient method of adjudicating these claims," according to the ruling.

"The court defines the primary issue for the Credit Agreement Class to be whether the 79.9 percent equity interest in AIG obtained by the government constituted an illegal exaction or a taking without just compensation," he wrote. "The court defines the primary issue for the Stock Split Class to be whether the reverse stock split on June 30, 2009, constituted an illegal exaction or taking without just compensation."

Judge Wheeler also designated David Boies, of Boies, Schiller & Flexner in Armonk, N.Y., as counsel of record for the classes.

Starr is also represented by John Gardiner of Skadden, Arps, Slate, Meagher & Flom in New York City.

Justice Department attorney Brian Mizoguchi represents the government.

Joseph Allerhand of Weil, Gotshal & Manges in New York City represented AIG as nominal defendant.

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