A.I.G.'s Request to Bar Greenberg Derivative Lawsuit

7/28/2019 A.I.G.'s Request to Bar Greenberg Derivative Lawsuit

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS-----------------------------------------------------------------------x

STARR INTERNATIONAL COMPANY, INC.,Individually and on Behalf of All Others Similarly

Situated, and derivatively on behalf of AMERICANINTERNATIONAL GROUP, INC.,

Plaintiff,

v.

THE UNITED STATES OF AMERICA,

Defendant,

and

AMERICAN INTERNATIONAL GROUP, INC., aDelaware corporation,

Nominal Defendant.

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No. 11-CV-779

(Judge T. Wheeler)

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MEMORANDUM OF LAW IN SUPPORT OF MOTION TO DISMISS

BY NOMINAL DEFENDANT AMERICAN INTERNATIONAL GROUP, INC.

Of Counsel:

Joseph S. Allerhand

Stephen A. RadinJamie L. Hoxie

April 5, 2013

WEIL, GOTSHAL & MANGES LLP767 Fifth AvenueNew York, NY 10153(212) 310-8000 (Telephone)(212) 310-8007 (Fax)

Attorneys for Nominal DefendantAmerican International Group, Inc.

Case 1:11-cv-00779-TCW Document 110 Filed 04/05/13 Page 1 of 51


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TABLE OF CONTENTS

Page

PRELIMINARY STATEMENT .....................................................................................................1

QUESTIONS PRESENTED ............................................................................................................4STATEMENT OF THE CASE ........................................................................................................6

A. The Parties ...............................................................................................................6

B. AIGs Board of Directors.........................................................................................7

C. Starrs New York Action .........................................................................................8

D. Starrs Claim That Demand Was Not Excused and Starrs Agreement toMake a Demand .......................................................................................................8

E. AIGs Refusal of Starrs Demand ............................................................................8

ARGUMENT .................................................................................................................................10STARR LACKS STANDING TO ASSERT DERIVATIVE CLAIMS IN AIGS NAME ..........10

I. DEMAND WAS NOT WRONGFULLY REFUSED .......................................................13

A. Demand Is Wrongfully Refused Only Where A Shareholder Alleges FactsOvercoming the Business Judgment Rule Presumption That Directors AreFaithful to Their Fiduciary Duties An Obstacle That Few, If Any,Plaintiffs Surmount ..............................................................................................13

B. Plaintiff Does Not Allege Particularized Facts Overcoming the BusinessJudgment Rule Presumption ..................................................................................16

1. Starrs Allegations Concerning the Strength of Starrs Case DoNot Overcome the Business Judgment Rule Presumption ........................17

2. Starrs Allegations Concerning Government Threats andIntimidation and a Government-Sponsored Public RelationsCampaign Do Not Overcome the Business Judgment RulePresumption ...............................................................................................22

3. Starrs Allegations That AIGs Directors Refused the Demand TooQuickly Do Not Overcome the Business Judgment RulePresumption ...............................................................................................23

4. Starrs Allegations That AIGs Directors Lacked Disinterestedness

and Independence Do Not Overcome the Business Judgment RulePresumption ...............................................................................................24

a. The Making of a Demand Waives Any Claim ThatDirectors Lack Disinterestedness and Independence .....................24

b. Starr Alleges No Facts Showing that AIGs Board LackedDisinterestedness and Independence ..............................................26



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(i) The Governments Alleged Control of the Electionof AIG Directors Does Not Establish A Lack ofDisinterestedness or Independence ....................................26

(ii) Nothing About the Trust that Held theGovernments AIG Shares Establishes A Lack of

Disinterestedness or Independence ....................................29

(iii) Starrs Allegations Concerning the Participation ofDirectors Who Approved the TransactionsUnderlying the Litigation Do Not Create A Lack ofDisinterestedness or Independence ....................................32

(iv) The Boards Retention of Counsel Familiar Withthe Transactions Underlying the Litigation DoesNot Create A Lack of Disinterestedness orIndependence .....................................................................33

II. DEMAND IS NOT EXCUSED .........................................................................................33

A. Demand Is Never Excused Where A Demand Has Been Made ............................34

B. Demand Would Not Be Excused Even If Starr Had Not Made A Demand ..........34

1. Demand Is Excused Only Under Very Narrow Circumstances,Requiring Particularized Allegations, and Not Group Allegations ........34

2. Plaintiff Does Not Allege Particularized Allegations ExcusingDemand ......................................................................................................36

a. Demand Is Not Excused Because the Government IsAlleged to Have Controlled the Election of AIGs Directors ........36

b. Demand Is Not Excused Because AIG Did Not CommenceThis Action Before Starr Commenced the Action .........................37

c. Demand Is Not Excused Because AIGs Board RefusedStarrs Demand or By Any Other Event Following StarrsDemand ..........................................................................................38

CONCLUSION ..............................................................................................................................40

APPENDIX

1. AIG Board Wont Sue Over Terms of Rescue, Wall St. J., Jan. 9, 2013 ..................... A003

2. AIG May Join Bailout Lawsuit Against U.S. Government, Reuters, Jan. 8, 2013 ....... A007

3. Lawsuit Fiasco Mars AIG Thank You Campaign, Politico, Jan. 15, 2013 ................ A010

4. Washingtons Jaw Drops at Possibility of AIG Lawsuit, Politico, Jan. 8, 2013 .......... A014

5. How About Charging AIG With Treason?, Market Watch, Jan. 8, 2013 ..................... A018



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6. Mar. 18, 2013 Starr 2d Cir. Motion to Take Judicial Notice ........................................ A020

7. Dec. 11, 2012 Dept of the Treasury Press Release ...................................................... A027

8. Dec. 14, 2012 AIG Press Release ................................................................................. A030

9. Apr. 5, 2012 AIG Proxy Statement (pages 1-2, 12-18) ................................................ A032

10. Jan. 24, 2013 AIG Form 8-K ........................................................................................ A043

11. M&A Law Prof Blog, Jan. 24, 2013 ............................................................................. A054

12. David Boies, Give AIG Shareholders Their Day In Court, USA Today, Jan. 8,2013............................................................................................................................... A056

13. AIG, the Fed and the Long Litigation Tail of Government Bailouts, Reuters,

Mar. 15, 2013 ................................................................................................................ A058

14. AIG Sues Federal Reserve Vehicle in Dispute Over Lawsuit Rights, Wall St. J.,Jan. 11, 2003 ................................................................................................................. A061

15. AIG Sues NY Fed Over Right to Sue Bank of America, Others, Reuters, Jan. 11,2003............................................................................................................................... A064

16. AIG Credit Facility and Trust Agreement, dated January 16, 2009 ............................. A066



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TABLE OF AUTHORITIES

Page(s)

CASES

In re Am. Intl Grp., Inc. Derivative Litig.,415 F. Appx 285 (2d Cir. 2011) .............................................................................................13

Andreae v. Andreae,1992 WL 43924 (Del. Ch. Mar. 3, 1992).................................................................................27

Aronson v. Lewis,473 A.2d 805 (Del. 1984) .................................................12, 13, 14, 26, 27, 29, 32, 34, 35, 36,............................................................................................................................................37, 39

AtraZeneca Pharm. L.P. v. Apotex Corp.,669 F.3d 1370 (Fed. Cir. 2012)..................................................................................................8

Beam v. Stewart,845 A.2d 1040 (Del. 2004) ..............................................................2, 13, 15, 26, 27, 28, 35, 37

Bell/Heery v. United States,106 Fed. Cl. 300 (2012) .............................................................................................................6

Benihana of Tokyo, Inc. v. Benihana, Inc.,891 A.2d 150 (Del. Ch. 2005)..................................................................................................31

Blasband v. Rales,

971 F.2d 1034 (3d Cir. 1992)...................................................................................................38

Boeing Co. v. Shrontz,1992 WL 81228 (Del. Ch. Apr. 20, 1992) ...............................................................................25

In re Boston Scientific Corp. Sholders Litig.,2007 WL 1696995 (S.D.N.Y. June 13, 2007) ...................................................................15, 16

Brehm v. Eisner,746 A.2d 244 (Del. 2000) ........................................................................................................32

Burks v. Lasker,

441 U.S. 471 (1979) ...................................................................................................................2

Carlton Invs. v. TLC Beatrice Intl Holdings, Inc.,1997 WL 305829 (Del. Ch. May 30, 1997) .............................................................................18

Cede & Co. v. Technicolor, Inc.,634 A.2d 345 (Del. 1993) ........................................................................................................31



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In re Citigroup Inc. Sholder Derivative Litig.,964 A.2d 106 (Del. Ch. 2009)..................................................................................................35

In re Citigroup Inc. Sholder Derivative Litig.,788 F. Supp. 2d 211 (S.D.N.Y. 2011)......................................................................................36

Conrad v. Blank,940 A.2d 28 (Del. Ch. 2007)....................................................................................................36

In re Consumers Power Co. Derivative Litig.,132 F.R.D. 455 (E.D. Mich. 1990) ..........................................................................................18

Cramer v. Gen. Tel. & Elecs. Corp.,582 F.2d 259 (3d Cir. 1978).....................................................................................................17

In re Delta & Pine Land Co. Sholders Litig.,2000 WL 875421 (Del. Ch. June 21, 2000) .............................................................................37

In re Delta & Pine Land Co. Sholders Litig.,2000 WL 1010584 (Del. Ch. July 17, 2000)............................................................................18

Desimone v. Barrows,924 A.2d 908 (Del. Ch. 2007)............................................................................................35, 37

In re Dollar Thrifty Sholder Litig.,14 A.3d 573 (Del. Ch. 2010)....................................................................................................14

In re Dow Chem. Co. Derivative Litig.,2010 WL 66769 (Del. Ch. Jan. 11, 2010) ................................................................................28

Ferre v. McGrath,2007 WL 1180650 (S.D.N.Y. Feb. 16, 2007) ..........................................................................19

First Hartford Corp. Pension Plan & Trust v. United States,54 Fed. Cl. 298 (2002) .............................................................................................................10

FLI Deep Marine LLC v. McKim,2009 WL 1204363 (Del. Ch. Apr. 21, 2009) ...............................................................25, 26, 34

Gamoran v. Neuberger, Berman LLC,

2013 WL 1286133 (S.D.N.Y. Mar. 29, 2013) ...............................................2, 5, 16, 17, 18, 34

Gantler v. Stephens,965 A.2d 695 (Del. 2009) ........................................................................................................14

Gaubert v. Fed. Home Loan Bank Bd.,863 F.2d 59 (D.C. Cir. 1988) ...................................................................................................11



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Gomes v. Am. Century Cos.,2013 WL 1235258 (8th Cir. Mar. 28, 2013) ............................................................................39

Gonzalez Turul v. Rogatol Distribs., Inc.,951 F.2d 1 (1st Cir. 1991) ........................................................................................................39

Gordon v. Goodyear,2012 WL 2885695 (N.D. Ill. July 13, 2012) ............................................................................12

Grimes v. Donald,673 A.2d 1207 (Del. 1996) ...............................................................1, 15, 17, 25, 32, 33, 34 35

Halebian v. Berv,590 F.3d 195 (2d Cir. 2009)...............................................................................................11, 12

Halpert Enters., Inc. v. Harrison,2007 WL 486561 (S.D.N.Y. Feb. 14, 2007),

affd, 2008 WL 4585466 (2d Cir. Oct. 15, 2008) ..............................................................11, 16

Hampshire Group, Ltd. v. Kuttner,2010 WL 2739995 (Del. Ch. July 12, 2010)............................................................................31

Harris v. Carter,582 A.2d 222 (Del. Ch. 1990)..................................................................................................38

In re IAC/InterActiveCorp Sec. Litig.,478 F. Supp. 2d 574 (S.D.N.Y. 2007)......................................................................................26

In re InfoUSA, Inc. Sholders Litig.,953 A.2d 963 (Del. Ch. 2007)............................................................................................18, 36

Kamen v. Kemper Fin. Servs., Inc.,500 U.S. 90 (1991) ...............................................................................................1, 2, 10, 11, 12

Kamen v. Kemper Fin. Servs., Inc.,939 F.2d 458 (7th Cir. 1991) .............................................................................................17, 38

Kaplan v. Peat, Marwick, Mitchell & Co.,540 A.2d 726 (Del. 1988) ........................................................................................................11

Kautz v. Sugarman,456 F. Appx 16 (2d Cir. 2011) ...............................................................................................38

Khanna v. McMinn,2006 WL 1388744 (Del. Ch. May 9, 2006) .............................................................................27

La. Mun. Police Emps. Ret. Sys. v. Morgan Stanley & Co.,2011 WL 773316 (Del. Ch. Mar. 4, 2011)...............................................................................16



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La. Mun. Police Emps. Ret. Sys. v. Pyott,46 A.3d 313 (Del. Ch. 2012),revd on other grounds, 2013 WL ____ (Del. Apr. 4, 2013)(not yet available on Westlaw) ................................................................................................31

Lambrecht v. ONeal,2012 WL 6013440 (2d Cir. Dec. 4, 2012) .................................................................................2

Levine v. Smith,1989 WL 150784 (Del. Ch. Nov. 27, 1989),affd, 591 A.2d 194 (Del. 1991) ..............................................................................................12

Levine v. Smith,591 A.2d 194 (Del. 1991) ............................................................................................15, 21, 25

Lewis v. Graves,701 F.2d 245 (2d Cir. 1983).....................................................................................................39

Love Terminal Partners v. United States,97 Fed. Cl. 355 (2011) ...............................................................................................................6

Loveman v. Lauder,484 F. Supp. 2d 259 (S.D.N.Y. 2007)......................................................................................27

In re Massey Energy Co.,2011 WL 2176479 (Del. Ch. May 31, 2011) ...........................................................................31

In re Merrill Lynch & Co., Sec., Derivative & ERISA Litig.,773 F. Supp. 2d 330 (S.D.N.Y. 2011),affd sub nom. Lambrecht v. ONeal, 2012 WL 6013440 (2d Cir. Dec. 4, 2012)..............................................................................................................................2, 5, 16, 17, 26

In re Mortg. & Realty Trust Sec. Litig.,787 F. Supp. 84 (E.D. Pa. 1991) ..............................................................................................39

Mount Moriah Cemetery v. Moritz,1991 WL 50149 (Del. Ch. Apr. 4, 1991),affd, 599 A.2d 413 (Del. 1991) ..............................................................................................21

N.J. Carpenters Pension Fund v. InfoGroup, Inc.,

2011 WL 4825888 (Del. Ch. Sept. 30, 2011) ....................................................................13, 32

Oliver v. Boston Univ.,2006 WL 1064169 (Del. Ch. Apr. 14, 2006) ...........................................................................31

Orman v. Cullman,794 A.2d 5 (Del. Ch. 2002)......................................................................................................32



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Pirelli Armstrong Tire Corp. Retire Med. Benefits Trust v. Raines,534 F.3d 779 (D.C. Cir. 2008) ...........................................................................................13, 36

Piven v. Ryan,2006 WL 756043 (N.D. Ill. Mar. 23, 2006) .............................................................................38

Rahbari v. Oros,732 F. Supp. 2d 367 (S.D.N.Y. 2010)......................................................................................36

Rales v. Blasband,634 A.2d 927 (Del. 1993) ................................................................................14, 24, 34, 35, 36

RCM Sec. Fund, Inc. v. Stanton,928 F.2d 1318 (2d Cir. 1991)...........................................................................................2, 5, 16

Robert F. Booth Trust v. Crowley,687 F.3d 314 (7th Cir. 2012) ...................................................................................................38

Ross v. Bernhard,396 U.S. 531 (1970) ...................................................................................................................1

Ryan v. Gifford,918 A.2d 341 (Del. Ch. 2007)..................................................................................................36

S. Muoio & Co. LLC v. Hallmark Entmt Invs. Co.,2011 WL 863007 (Del. Ch. Mar. 9, 2011),affd, 35 A.3d 419 (Del. 2011) ................................................................................................27

Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A.,2011 WL 3371493 (Del. Ch. Aug. 5, 2011),affd, 34 A.3d 1074 (Del. 2011) ..............................................................................................31

Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas, S.A.,34 A.3d 1074 (Del. 2011) ........................................................................................................12

Scalisi v. Fund Asset Mgmt., L.P.,380 F.3d 133 (2d Cir. 2004).....................................................................................................11

Scattered Corp. v. Chi. Stock Exch., Inc.,701 A.2d 70 (Del. 1997) ........................................................................................15, 21, 24, 34

Sebastian v. United States,185 F.3d 1368 (Fed. Cir. 1999)..................................................................................................6

Simmonds v. Credit Suisse Sec. (USA) LLC,638 F.3d 1072 (9th Cir. 2011),vacated and remanded, 132 S. Ct. 1414 (2012) .......................................................................34



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Sinclair Oil Corp. v. Levien,280 A.2d 717 (Del. 1971) ........................................................................................................14

In re Smith & Wesson Holding Corp. Derivative Litig.,743 F. Supp. 2d 14 (D. Mass. 2010) ........................................................................................37

In re Smurfit-Stone Container Corp. Sholder Litig.,2011 WL 2028076 (Del. Ch. May 20, 2011) ..........................................................................14

In re S. Peru Copper Corp. Sholder Derivative Litig.,30 A.3d 60 (Del. Ch. 2011),affd sub nom. Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012) ...........................27

In re Sonus Networks, Inc., Sholder Derivative Litig.,499 F.3d 47 (1st Cir. 2007) ................................................................................................25, 28

Spiegel v. Buntrock,

571 A.2d 767 (Del. 1990) ......................................................................................14, 15, 25, 34

Starr Intl Co. v. Fed. Reserve Bank of N.Y.,2012 WL 5834852 (S.D.N.Y. Nov. 16, 2012) ...........................................5, 6, 8, 27, 29, 30, 36

Starr Intl Co. v. United States,106 Fed. Cl. 50 (2012),motion for reconsideration denied, 107 Fed. Cl. 374 (2012) .......................................11, 19, 20

Terry v. United States,103 Fed. Cl. 645 (2012) .............................................................................................................6

In re VistaCare, Inc., Derivative Litig.,2007 WL 2460610 (D. Ariz. Aug. 23, 2007) ...........................................................................18

In re Walt Disney Co. Derivative Litig.,906 A.2d 27 (Del. 2006) ................................................................................................2, 13, 14

Weinstein Enters., Inc. v. Orloff,870 A.2d 499 (Del. 2005) ........................................................................................................26

In re W. Natl Corp. Sholders Litig.,2000 WL 710192 (Del. Ch. May 22, 2000) .............................................................................29

Wood v. Baum,953 A.2d 136 (Del. 2008) ......................................................................................11, 32, 35, 36

Zapata Corp. v. Maldonado,430 A.2d 779 (Del. 1981) ............................................................................................14, 17, 18



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STATUTES & RULES

RCFC 23.1 .................................................................................................................1, 2, 4, 5, 8, 10

Fed. R. Civ. P. 12(b)(6)..............................................................................................................6, 12

Fed. R. Civ. P. 23.1 ................................................................................................10, 11, 12, 17, 39

Fed. R. Evid. 201 .............................................................................................................................6

Model Bus. Corp. Act 7.42 .........................................................................................................38



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PRELIMINARY STATEMENT

This is one of two lawsuits filed by Plaintiff Starr International Group, Inc.

(Starr) alleging claims against the United States of America (the Government) in this Court

and against the Federal Reserve Bank of New York (FRBNY) in the Southern District of New

York. The lawsuits challenge the Governments September 2008 rescue of American Interna-

tional Group, Inc. (AIG) and subsequent related events, including claims involving Maiden

Lane III (ML III), a special purpose vehicle used to resolve AIG obligations to credit default

swap counterparties in the aftermath of the Governments September 2008 rescue of AIG.

Starr alleges that its claims are derivative claims brought on behalf of AIG and

direct claims brought on behalf of Starr and two classes of AIG shareholders. This brief

addresses only Starrs standing under Rule 23.1 of the Rules of the Court of Federal Claims

(RCFC) and the governing substantive Delaware law to bring alleged derivative claims on

AIGs behalf. AIG is not a party to Starrs alleged direct claims.

Starrs derivative claims should be dismissed under RCFC 23.1 because Starr has

not alleged facts showing that AIGs board wrongfully refused Starrs demand that AIG bring

the claims and has not alleged facts showing that demand was excused.

* * *

Unlike an action brought on ones own behalf to enforce a personal claim, a

shareholder derivative action is brought to enforce a corporate cause of action. Kamen v.

Kemper Fin. Servs., Inc., 500 U.S. 90, 95 (1991) (quoting Ross v. Bernhard, 396 U.S. 531, 534

(1970)) (emphasis in original). Although named a defendant, the corporation is the real party

in interest, the stockholder being at best the nominal plaintiff. Ross, 396 U.S. at 538. The

claim belongs to the corporation. Grimes v. Donald, 673 A.2d 1207, 1215 (Del. 1996).

The pre-suit demand requirement implements the basic principle of corporate



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governance that the decisions of a corporation including the decision to initiate litigation

should be made by the board of directors or the majority of shareholders. Kamen, 500 U.S. at

101 (citation omitted). The law recognizes that [t]here may well be situations in which the

independent directors could reasonably believe that the best interests of the shareholders call for

a decision not to sue. Burks v. Lasker, 441 U.S. 471, 485 (1979). Starr made a demand, and

AIGs board of directors determined to refuse the demand following extensive written and oral

presentations from Starr, the Government and FRBNY.

The business judgment rule a presumption that directors are faithful to their

fiduciary duties (Beam v. Stewart, 845 A.2d 1040, 1048 (Del. 2004)) protects a board deci-

sion to refuse a shareholder demand unless the decision cannot be attributed to any rational

business purpose. In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 74 (Del. 2006) (cita-

tion omitted). [F]ew, if any, plaintiffs surmount this obstacle. RCM Sec. Fund, Inc. v. Stan-

ton, 928 F.2d 1318, 1328 (2d Cir. 1991), quoted in In re Merrill Lynch & Co., Sec., Derivative &

ERISA Litig., 773 F. Supp. 2d 330, 345 (S.D.N.Y. 2011), affd sub nom. Lambrecht v. ONeal,

2012 WL 6013440 (2d Cir. Dec. 4, 2012) and Gamoran v. Neuberger, Berman LLC, 2013 WL

1286133, at *5 (S.D.N.Y. Mar. 29, 2013).

This case is no exception to this rule. Starr has alleged no facts much less par-

ticularized facts, as required by RCFC 23.1 that, if true, would overcome the business judg-

ment rule presumption that directors are faithful to their fiduciary duties. Starr has alleged no

facts showing that the AIG boards decision to refuse Starrs demand cannot be attributed to a

rational business purpose. In reaching its decision with the assistance of counsel, AIGs board

considered, among other factors, the merits of the case, the amount (if any) likely to be recovered

if the claims succeed, and indemnification claims AIG would face from the Government.



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Whatever Starr may think, it was not irrational for AIGs board to conclude that the claims Starr

seeks to bring in AIGs name are not the slam dunk easy winners Starr portrays; to the

contrary, AIGs board was advised by its counsel (and experts on constitutional law and financial

regulation) that Starrs likelihood of success is in fact low. AIGs directors also recognized that

AIG would face incalculable harm to AIGs corporate brand and image and relationships with

shareholders, customers, regulators and elected officials if AIG pursued litigation against the

Government, and that this harm threatened to nullify the herculean efforts AIG and its employees

have made to rebuild AIGs name and reputation following the events of September 2008 and

repay the entire amount AIG owed the Government (plus a profit for the Government). Far from

being irrational, these concerns were confirmed for the board by the wave of negative publicity

triggered by the boards mere consideration of Starrs demand.1

Starr may not be concerned about the harm AIG will suffer if AIG pursues claims

against the Government, but the balancing of potential benefits and potential harms of AIGs

pursuit of this litigation is a business judgment for AIGs board of directors, not Starr. AIGs

directors had every right to decide, in the exercise of their business judgment, that suing the

1See, e.g., AIG Board Wont Sue Over Terms of Rescue, Wall St. J., Jan. 9, 2013 ([n]ews of

AIGs consideration of the matter this week unleashed a torrent of criticism that the insurerappeared ungrateful toward taxpayers for the governments rescue effort) (Ex. 1); AIG MayJoin Bailout Lawsuit Against U.S. Government, Reuters, Jan. 8, 2013 (American InternationalGroup Inc., the insurer rescued by the U.S. government in 2008, drew angry condemnation fromlawmakers on Tuesday after saying it may join a lawsuit that alleges the bailout terms wereunfair; [t]he move would be something of a shock, given that AIG just launched a high-profiletelevision ad campaign called Thank You America, in which it offers the public its gratitude forthe bailout) (Ex. 2); Lawsuit Fiasco Mars AIG Thank You Campaign, Politico, Jan. 15, 2013([t]he episode . . . drew fierce criticism all around and [t]he blowback to even the notion ofsuing the government was fierce and . . . a setback . . . for AIG) (Ex. 3); Washingtons JawDrops at Possibility of AIG Lawsuit, Politico, Jan. 8, 2013 (quoting White House aide DavidAxelrods [d]efinition of Chutzpah: AIG, saved by taxpayers, contemplating suit and report-ing possibility if AIG pursues the litigation of hearings on Capitol Hill) (Ex. 4); How AboutCharging AIG With Treason?, MarketWatch, Jan. 8, 2013 (AIG suing the government is like apatient who is suing his doctor for saving his life) (Ex. 5).



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Government for its rescue of AIG is not the right thing for AIG to do, and that AIGs interests

are better served by focusing on the future and not joining litigation concerning the past. Under

well settled Delaware law, Starr cannot usurp the right of AIGs board to make this business

judgment.

Starr also cannot claim, as it tries, that the demand it made was not required and

that the Court should pretend that the events of the last six months never happened. Starr made

the demand, thereby waiving its claim that the demand was not required as a matter of law. A

shareholder cannot file a derivative action alleging that a demand is excused, make a demand ten

months later, participate in an unprecedented four month decision-making process including

written and oral presentations to the corporations board, and then, after the board does not make

the hoped-for decision, say never mind and go back to the shareholders original claim that

demand was excused. It is absurd to hold that demand is excused where it has been made and

refused in a manner protected by the business judgment rule.

Finally, demand would not be excused even if Starr is correct that its demand

excused argument is not waived and even if the Court is prepared to ignore the fact that the

demand was made and refused. Unlike the situation in cases where demand is excused, Starr

alleges no wrongdoing by AIGs directors and no facts suggesting that any much less a

majority of AIGs directors are willing to risk their professional reputations rather than do what

they think is right with respect to whether a lawsuit by AIG against the Government would serve

the best interests of AIG and its shareholders.

QUESTIONS PRESENTED

1. Has Starr pled particularized facts as required by RCFC 23.1 and sub-

stantive Delaware law showing that the decision by AIGs board of directors to refuse Starrs

demand that AIG pursue this litigation against the Government is not protected by the business



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judgment rule presumption that directors are faithful to their fiduciary duties to act in good faith

and in the best interests of the corporation they serve, where (i) AIGs board was advised by

counsel and experts on constitutional and financial regulation issues with respect to the merits

and the likelihood of recovery for AIG, (ii) AIG faced indemnification clams by the Govern-

ment, (iii) pursuit of this litigation threatened substantial damage to AIGs corporate brand and

image, and relationships with shareholders, customers, regulators and elected officials, and (iv)

the reputational harm AIG would suffer by pursuing claims against the Government was

confirmed the media and congressional reaction to the boards consideration of Starrs demand?

The answer is no. The business judgment rule protects board decisions to refuse

shareholder demands so long as the decision can be attributed to a rational business purpose.

[F]ew, if any, plaintiffs surmount this obstacle. RCM, 928 F.2d at 1328; Merrill Lynch, 773 F.

Supp. 2d at 345; Gamoran, 2013 WL 1286133, at *5. This case is no exception.

2. Has Starr pled particularized facts as required by RCFC 23.1 and sub-

stantive Delaware law showing that the demand Starr made on AIGs board was excused,

where (i) Starr made the demand, (ii) none of AIGs directors is alleged to have engaged in

wrongdoing, and (iii) Starr has alleged no facts suggesting any much less a majority of AIGs

directors are more willing to risk their professional reputations than do what they think is right

with respect to whether a lawsuit by AIG against the Government would serve the best interests

of AIG and its shareholders?

The answer is no, as the court in Starrs New York action has already correctly

held. Missing is any allegation tending to show that any outside director of AIG . . . , let alone a

majority, had an individual interest that would make him or her not disinterested with respect to

a decision whether to sue [the Government]. Starr Intl Co. v. Fed. Reserve Bank of N.Y., 2012



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WL 5834852, at *47 (S.D.N.Y. Nov. 16, 2012).2

STATEMENT OF THE CASE

A. The Parties

Plaintiff Starr alleges that it is a Panama corporation with its principal place of

business in Switzerland and a shareholder of AIG. 2d Am. Compl. 28.

AIG, on whose behalf Starr asserts its derivative claims, is a Delaware corpora-

tion with its principal executive offices in New York City. AIG provides insurance and financial

services throughout the United States and internationally. 2d Am. Compl. 30.

Defendant United States of America (the Government) includes the Depart-

ment of the Treasury and its agents acting at its direction. 2d Am. Compl. 29. Following the

events of September 2008 and subsequent months, the Government owned over 90% of AIGs

common stock. Dec. 11, 2012 Dept of the Treasury Press Release (Ex. 7). As of December

2012, the Government had sold its shares and no longer owns AIG stock. Id.; Dec. 14, 2012

AIG Press Release (Ex. 8).

2 The court may take judicial notice of publicly available documents which represent a publicrecord for the fact that the statements were made and [t]his includes facts and documentswhich are not subject to reasonable dispute. Mar. 18, 2013 Starr 2d Cir. Motion to Take Judi-cial Notice at 2 (Ex. 6); see also Feb. 11, 2013 Starr 2d Cir. Brief at 3 n.3 (courts may takejudicial notice of facts outside the record that are not subject to reasonable dispute); Sebastianv. United States, 185 F.3d 1368, 1374 (Fed. Cir. 1999) ([i]n deciding whether to dismiss a com-plaint under Rule 12(b)(6), the court may consider matters of public record); Bell/Heery v.United States, 106 Fed. Cl. 300, 307 (2012) ([i]t is well established that . . . the court must con-sider . . . matters of which a court may take judicial notice) (citation omitted); Terry v. UnitedStates, 103 Fed. Cl. 645, 652 (2012) (matters of public record may be considered on motion todismiss); Love Terminal Partners v. United States, 97 Fed. Cl. 355, 385 (2011) (matters ofpublic record fall within the narrowly defined category of materials a court can considerwithout converting a[n FRCP] 12(b)(6) motion to one for summary judgment); Fed. R. Evid.201 (permitting judicial notice of facts not subject to reasonable dispute that can be accuratelyand readily determined from sources whose accuracy cannot reasonably be questioned).



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B. AIGs Board of Directors

AIGs directors are not named as defendants in this action and face no prospect of

personal liability if the derivative claims are pursued. SEC filings show that the following 12

individuals serve on AIGs board:

Director Joined Board Experience and Qualifications

Robert H. Benmosche Aug. 10, 2009 President and Chief Executive Officer,American International Group, Inc.

W. Don Cornwell May 11, 2011 Former Chairman of the Board and ChiefExecutive Officer, Granite BroadcastingCorporation

John H. Fitzpatrick May 11, 2011 Secretary General and Managing Director,The Geneva AssociationFormer Chief Financial Officer and Head of the

Life and Health Business Group and Head ofFinancial Services, Swiss Re

Christopher S. Lynch June 30, 2009 Former National Partner in Charge of FinancialServices, KPMG LLP

Arthur C. Martinez June 30, 2009 Former Chairman of the Board, President andChief Executive Officer, Sears, Roebuck and Co.

George L. Miles, Jr. 2005 Executive Chairman, Chester Engineers, Inc.Former President and Chief Executive Officer,WQED Multimedia

Henry S. Miller Apr. 7, 2010 Chairman, Marblegate Asset ManagementFormer Chairman and Managing Director, MillerBuckfire & Co., LLC

Robert S. Miller June 30, 2009 Chief Executive Officer, Hawker Beechcraft, Inc.Former Executive Chairman, Delphi Corporation

Suzanne Nora Johnson 2008 Former Vice Chairman, The Goldman SachsGroup, Inc.

Morris W. Offit 2005 Chairman, Offit Capital Advisors LLCFounder and Former Chief Executive Officer,OFFITBANK

Ronald A. Rittenmeyer Apr. 1, 2010 President and Chief Executive Officer, NCOGroup, Inc.Former Chairman, Chief Executive Officer andPresident, Electronic Data Systems CorporationFormer Chairman, Chief Executive Officer and

President, Safety-Kleen Corp.Douglas M. Steenland June 30, 2009 Former President and Chief Executive Officer,

Northwest Airlines Corporation

Apr. 5, 2012 AIG Proxy Statement at 12-18 (Ex. 9).



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C. Starrs New York Action

On November 16, 2012, the court in Starrs New York action dismissed Starrs

derivative claims against FRBNY in the New York action on several grounds, including plain-

tiffs failure to make a demand. Starr Intl Co. v. Fed. Reserve Bank of N.Y., 2012 WL

5834852, at *47-48 (S.D.N.Y. Nov. 16, 2012). An appeal is fully briefed.

D. Starrs Claim That Demand Was Not Excused and Starrs Agreement to

Make a Demand

Starrs complaint and amended complaint alleged that a demand on AIGs board

was excused. Compl. 167 (Dkt. No. 1); Am. Compl. 167 (Dkt. No. 22). Starr and AIG sub-

sequently agreed that Starr would make a demand and that Starr (and the Government) would be

provided opportunities to make written and oral submissions to AIGs board. Dkt. Nos. 57 at 4,

85 at 22. Starr reserved the right to later claim that the demand was not required, and AIG

reserved all arguments to the contrary. Dkt. No. 64-1 at 4.

E. AIGs Refusal of Starrs Demand

On January 9, 2013, AIGs board refused Starrs demand, and on January 23,

2013 AIG sent a letter to Starrs counsel (and filed the letter with this Court and the SEC) setting

forth the process by which the board considered Starrs demand and the boards rationale for its

unanimous determination to refuse that demand. Dkt. Nos. 86, 87, 87-1.3

3The demand refusal is properly before the Court because it is a public record (see footnote 2

above) filed in this Court and referred to in this Courts March 1, 2013 decision (Dkt. Nos. 86,87, 87-1, 99 at 2) and filed with the SEC (Jan. 24, 2013 AIG Form 8-K, Ex. 10 (without volum-

inous exhibits included in Dkt. Nos. 87-3 through 87-26)). The demand refusal is also before theCourt as an integral part of Starrs second amended complaint (2d Am. Compl. 181, 191, 192,219), as required by RCFC 23.1(b), which states that the complaint in a derivative action must. . . state with particularity . . . any effort by the plaintiff to obtain the desired action from thedirectors . . . and . . . the reasons for not obtaining the action (emphasis added), and pursuant tocases such as AtraZeneca Pharm. L.P. v. Apotex Corp., 669 F.3d 1370, 1378 n.5 (Fed. Cir. 2012)(courts examine documents integral to or explicitly relied upon in the complaint in evaluatingmotions to dismiss) (citation omitted).



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The letter states that AIGs board, advised by counsel, including independent

counsel, provided Starr, the Government and FRBNY an opportunity to make their case to the

board through three rounds of briefing totaling 184 pages (plus voluminous exhibits) during the

late fall of 2012. Then, on January 9, 2013, the board met with representatives of Starr, the

Government and FRBNY. Starrs chairman, Maurice R. (Hank) Greenberg, was present as

Starrs counsel spoke for 45 minutes, Treasurys counsel spoke for 30 minutes, FRBNYs coun-

sel spoke for 30 minutes, Starrs counsel replied for 15 minutes, and Treasury, FRBNY and then

Starr presented 2 minute closing statements. Dkt. Nos. 87-1 at 6 and 87-26 at 4-111 (transcript

of presentations).

Starr, the Government and FRBNY then left the meeting, members of the board

and management who had participated in the events underlying the demand commented on

factual assertions made during the presentations, and the board discussed the presentations and

formulated follow-up questions for Starr, Treasury and FRBNY. The board was informed that at

least one state insurance regulator had called AIG during the meeting to recommend strongly that

AIG not join the suit in light of potential harm to AIG customers. Dkt. No. 87-1 at 6.

Starr, Treasury and FRBNY then returned to the meeting, answered questions

from the Board for approximately 40 minutes. Dkt. Nos. 87-1 at 6 and 87-26 at 111-4 (transcript

of questions and answers). At the conclusion of the parties presentations, Starrs counsel stated

that he could not think of anything that we havent said in general terms that would be material

to the boards decision. Dkt. No. 87-26 at 142.

AIGs letter refusing Starrs demand summarizes the conclusion of the boards

deliberations as follows:



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Mr. R. Miller, the Chairman of the Board, suggested that the directors each statetheir individual views with respect to the Demand based on all of the informationthe Board had now been provided.

Each director spoke, and each director stated his or her view that the Demand

should be refused for one or more of multiple reasons, including the low likeli-hood of success on the merits, the realistic potential damages, the uncertainty inallocating any potential damages among the direct and derivative claims, thepotential harm to AIGs goodwill and the positive image that AIG had worked sohard to restore since September 2008 (consistent with the negative reaction by thepublic, the media, regulators and elected officials even to the Boards considera-tion of the Demand), the fact that a deal is a deal, and AIGs potential indemni-fication obligations. Mr. Benmosche, AIGs chief executive officer, stated hisview that AIG had no choice but to honor the deal AIG struck with FRBNY, thatsuing the United States or FRBNY was not the right thing to do, and that AIGshould continue to focus on the future, not the past.

Dkt. No. 87-1 at 6-7. The board unanimously refused the demand. Dkt. No. 87-1 at 7.

ARGUMENT

STARR LACKS STANDING TO ASSERT DERIVATIVE CLAIMS IN AIGS NAME

Starr lacks standing to assert derivative claims on AIGs behalf because Starr has

not complied with the pre-suit demand requirement. RCFC 23.1 requires that a plaintiff in a

shareholder derivative action state with particularity . . . any effort by plaintiff to obtain the

desired action from the directors . . . and . . . the reasons for not obtaining the action or not mak-

ing the effort. RCFC 23.1(b)(3) (emphasis added). This Court is comfortable . . . in looking to

cases involving Federal Rule 23.1, which contains identical language to RCFC 23.1, to assist in

its interpretation of RCFC 23.1. First Hartford Corp. Pension Plan & Trust v. United States, 54

Fed. Cl. 298, 303 n.9 (2002); see also RCFC rules committee notes 2002 ([t]his version of

RCFC 23.1 is in conformity with the corresponding FRCP).

Rule 23.1 does not create a demand requirement. Kamen, 500 U.S. at 96 (em-

phasis in original). Rather, Rule 23.1 governs the specificity of facts alleged with regard to

efforts made to urge a corporations directors to bring the action in question, but the adequacy



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of those efforts is to be determined by state law. Halebian v. Berv, 590 F.3d 195, 204, 206 n.7

(2d Cir. 2009) (citation omitted); see also Kamen, 500 U.S. at 96-97 (demand requirement is a

matter of substance, not procedure). Accordingly, Rule 23.1 outlines the procedural rules

with which a derivative action in federal court must comply, and state law provides the sub-

stantive law governing a Boards refusal of a demand. Halpert Enters., Inc. v. Harrison, 2007

WL 486561, at *4 (S.D.N.Y. Feb. 14, 2007), affd, 2008 WL 4585466 (2d Cir. Oct. 15, 2008).

Likewise, [t]he substantive law which determines whether demand is, in fact, futile is provided

by the state of incorporation. Scalisi v. Fund Asset Mgmt., L.P., 380 F.3d 133, 138 (2d Cir.

2004).

AIG is a Delaware corporation. 2d Am. Compl. 30. Delaware law thus

governs. Under Delaware law, [a] stockholder may not pursue a derivative suit to assert a claim

of the corporation unless the stockholder: (a) has first demanded that the directors pursue the

corporate claim and the directors have wrongfully refused to do so; or (b) establishes that pre-

suit demand is excused because the directors are deemed incapable of making an impartial

decision regarding the pursuit of the litigation. Wood v. Baum, 953 A.2d 136, 140 (Del. 2008).

This demand requirement reflects the basic principle of corporate governance

that the decisions of a corporation including the decision to initiate litigation should be made

by the board of directors or the majority of shareholders. Kamen, 500 U.S. at 101 (citation

omitted); see also Starr Intl Co. v. United States, 106 Fed. Cl. 50, 66 (2012) ([t]he purpose of

the demand requirement is to protect the directors power to manage the affairs of the corpora-

tion), motion for reconsideration denied, 107 Fed. Cl. 374 (2012) (quoting Kaplan v. Peat,

Marwick, Mitchell & Co., 540 A.2d 726, 730 (Del. 1988)); Gaubert v. Fed. Home Loan Bank

Bd., 863 F.2d 59, 65 (D.C. Cir. 1988) (at its most fundamental, the demand requirement fur-



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thers a principle basic to corporate organization, that the management of the corporation be

entrusted to its board of directors) (citation omitted); Aronson v. Lewis, 473 A.2d 805, 811

(Del. 1984) (it is a cardinal precept of the General Corporation Law of the State of Delaware

. . . that directors, rather than shareholders, manage the business and affairs of the corporation).

The demand requirement thus afford[s] the directors an opportunity to exercise

their reasonable business judgment and waive a legal right vested in the corporation in the belief

that its best interests will be promoted by not insisting on such right and protect[s] the direc-

tors prerogative to take over the litigation or to oppose it. Kamen, 500 U.S. at 96, 101 (cita-

tions omitted); see also Halebian, 590 F.3d at 205 ([t]he rationale behind the demand require-

ment is that, as a basic principle of corporate governance, the board of directors or majority of

shareholders should set the corporations business policy, including the decision whether to pur-

sue a lawsuit) (citation omitted); Sagarra Inversiones, S.L. v. Cementos Portland Valderrivas,

S.A., 34 A.3d 1074, 1082 (Del. 2011) (the presuit demand requirement serves a core function of

substantive corporation law, in that it allocates, as between directors and shareholders, the auth-

ority to sue on behalf of the corporation).

For these reasons, [u]nlike its Rule 12(b)(6) counterpart, a motion to dismiss

under Rule 23.1 is not intended to test the legal sufficiency of the plaintiffs substantive claim.

Rather, its purpose is to determine who is entitled, as between the corporation and its share-

holders, to assert the plaintiffs underlying substantive claim on the corporations behalf.

Levine v. Smith, 1989 WL 150784, at *5 (Del. Ch. Nov. 27, 1989), affd, 591 A.2d 194 (Del.

1991), quoted in, e.g., Gordon v. Goodyear, 2012 WL 2885695, at *5 (N.D. Ill. July 13, 2012).



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I. DEMAND WAS NOT WRONGFULLY REFUSED

A. Demand Is Wrongfully Refused Only Where A Shareholder Alleges Facts

Overcoming the Business Judgment Rule Presumption That Directors Are

Faithful to Their Fiduciary Duties An Obstacle That Few, If Any,

Plaintiffs Surmount

The business judgment rule the foundation and core of Delaware corporate

law (N.J. Carpenters Pension Fund v. InfoGroup, Inc., 2011 WL 4825888, at *8 (Del. Ch. Sept.

30, 2011)) is a presumption that [directors] were faithful to their fiduciary duties and pre-

sumes that in making a business decision the directors of a corporation acted on an informed

basis, in good faith, and in the honest belief that the action taken was in the best interests of the

company. Beam, 845 A.2d at 1048; Disney, 906 A.2d at 52 (quoting Aronson, 473 A.2d at

812); see also Pirelli Armstrong Tire Corp. Retire Med. Benefits Trust v. Raines, 534 F.3d 779,

791 (D.C. Cir. 2008) (under Delaware law [t]he business judgment rule establishes a pre-

sumption that in making a business decision the directors of a corporation acted on an informed

basis, in good faith and in the honest belief that the action taken was in the best interests of the

company) (citation omitted).

The Delaware Supreme Court has emphasized the importance of the presumption

of the business judgment rule in derivative litigation, as follows:

The key principle upon which this area of our jurisprudence is based is that thedirectors are entitled to a presumption that they were faithful to their fiduciaryduties. In the context of presuit demand, the burden is upon the plaintiff in aderivative action to overcome that presumption.

Beam, 845 A.2d at 1048-49 (emphasis in original; footnotes omitted); see also In re Am. Intl

Grp., Inc. Derivative Litig., 415 F. Appx 285, 286 (2d Cir. 2011) ([u]nder applicable Delaware

law, directors are entitled to a presumption that they were faithful to their fiduciary duties, and

a shareholder seeking to bring a derivative suit bears the burden of overcom[ing] that presump-

tion) (quoting Beam).



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The business judgment rule presumptions that shareholders must overcome . . .

before they will be permitted to pursue [a] derivative claim are powerful. Rales v. Blasband,

634 A.2d 927, 933 (Del. 1993). [W]here business judgment presumptions are applicable, the

boards decision will be upheld unless it cannot be attributed to any rational business purpose.

Disney, 906 A.2d at 74 (quoting Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971));

see also Gantler v. Stephens, 965 A.2d 695, 706 (Del. 2009) (under the business judgment rule,

a court will not substitute its judgment for that of the board if the . . . decision can be attrib-

uted to any rational business purpose) (citations omitted); In re Smurfit-Stone Container Corp.

Sholder Litig., 2011 WL 2028076, at *11 (Del. Ch. May 20, 2011) ([t]his standard of review is

respectful to director prerogatives to manage the business of a corporation; in cases where it

applies, courts must give great deference to directors decisions and, as long as the court can

discern a rational business purpose for the decision, it must not invalidate the decision . . .

examine its reasonableness, [or] substitute [its] views for those of the board) (citation omitted);

In re Dollar Thrifty Sholder Litig., 14 A.3d 573, 597 (Del. Ch. 2010) (business judgment rule

review reflect[s] a policy of maximal deference to disinterested board decisionmaking).

The Delaware Supreme Court has stated no fewer than five times that a boards

decision to refuse a shareholder demand is protected by the business judgment rule. See

x Zapata Corp. v. Maldonado, 430 A.2d 779, 784 n.10 (Del. 1981) (when stock-holders, after making demand and having their suit rejected, attack the boardsdecision as improper, the boards decision falls under the business judgmentrule);

x Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984) (where demand on a board hasbeen made and refused, we apply the business judgment rule in reviewing theboards refusal to act pursuant to a stockholders demand);

x Spiegel v. Buntrock, 571 A.2d 767, 775-76 (Del. 1990) (stockholders who, likeSpiegel, make a demand which is refused, subject the boards decision to judicialreview according to the traditional business judgment rule);



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x Levine v. Smith, 591 A.2d 194, 212 (Del. 1991) (the boards refusal is subject tojudicial review according to the traditional business judgment rule) (quotingSpiegel);

x Grimes v. Donald, 673 A.2d 1207, 1219 (Del. 1996) ([i]f a demand is made and

rejected, the board rejecting the demand is entitled to the presumption of thebusiness judgment rule).

As this Court stated in its March 1, 2013 decision, under Delaware law the determination

whether or not to pursue litigation is a business decision entitled to deference under the business

judgment rule. Dkt. No. 99 at 3.

To survive a motion to dismiss, a shareholder plaintiff must allege facts with

particularity creating a reasonable doubt that the board is entitled to the benefit of the presump-

tion. Grimes, 673 A.2d at 1219 (emphasis added). The term reasonable doubt requires a

reasonable belief that the boards decision is not protected by the business judgment rule.

Id. at 1217 n.17. The reasonable doubt cannot be based on mere suspicions or stated in

conclusory terms. Id. at 1217. The term reasonable doubt does not weaken or water[ ]

down the pleading threshold set forth in [Delaware] jurisprudence. Beam, 845 A.2d at 1050

n.26. The plaintiff must overcome th[e] presumption and must do so at the pleading stage.

Id. at 1049. Plaintiffs are not entitled to discovery to assist their compliance with the particu-

larized pleading requirement. Scattered Corp. v. Chi. Stock Exch., Inc., 701 A.2d 70, 77 (Del.

1997). As this Court stated in its March 1, 2013 decision: Federal courts routinely evaluate

allegations of wrongful refusal of shareholder demand at the pleadings stage and in the context

of a motion to dismiss. . . . [A]ffording discovery, and allowing the case to proceed beyond the

pleadings stage, would frustrate the purposes behind Delawares substantive law regarding

demand-refusal, and its recognition that the determination of whether or not to pursue litigation

is a business decision entitled to deference under the business judgment rule. Dkt. No. 99 at 3

(quoting In re Boston Scientific Corp. Sholders Litig., 2007 WL 1696995, at *5 (S.D.N.Y. June



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13, 2007)).

This is a highly deferential standard, and a shareholder faces long odds in

showing that the refusal was wrongful. La. Mun. Police Emps. Ret. Sys. v. Morgan Stanley &

Co., 2011 WL 773316, at *7-8 (Del. Ch. Mar. 4, 2011); see also Gamoran, 2013 WL 1286133, at

*5 (plaintiffs allegations must rise to the level of specificity required to overcome the strong

deference owed to a board under the business judgment rule). [F]ew, if any, plaintiffs sur-

mount this obstacle. RCM, 928 F.2d at 1328, quoted in Halpert, 2007 WL 486561, at *5 n.4,

Boston Scientific, 2007 WL 1696995, at *5, Merrill Lynch, 773 F. Supp. 2d at 345 and Gam-

oran, 2013 WL 1286133, at *5 (all construing Delaware law).

B. Plaintiff Does Not Allege Particularized Facts Overcoming the Business

Judgment Rule Presumption

Starr has alleged no facts and certainly no particularized facts that would

overcome the long odds Starr faces (La. Mun., 2011 WL 773316, at *8) or making this case

the exception to the rule that few, if any, plaintiffs surmount th[e] obstacle (RCM, 928 F.2d at

1328) of the business judgment rule presumption in a case where a board has refused a demand.

AIGs board followed an exemplary process, to our knowledge unparalleled in the history of

corporate America and that law school professors are already using in their classes.4

4 See Brian J.M. Quinn, Demand . . . refused, M&A Law Prof Blog, Jan. 24, 2013 (Ex. 11):

For all you law students out there who are mystified by the procedural niceties ofderivative litigation (actually, I should include a pile of politicians and mediatypes in this group as well), AIG has filed a copy of its demand refusal with theSEC. Its right here. Youll also find a copy of the plaintiffs demand letter thatkicked this whole thing off. I'll probably be using these materials in the futurewhen I next walk through derivative litigation.

What does the filing tell us? Well, after plaintiffs filed their demand that theboard took its time and didnt rush its decision with respect to the litigation.When it took up the litigation, it had informed itself of the issues and decided that



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1. Starrs Allegations Concerning the Strength of Starrs Case Do Not

Overcome the Business Judgment Rule Presumption

Starr alleges that [t]he AIG Boards wrongful refusal of Starrs demand is evi-

denced by the strength of Starrs case. 2d Am. Compl. 192. But Delaware law does not

permit a plaintiff to overcome the business judgment rule simply by asserting that the substance

of a board of directors decision was wrong. Gamoran, 2013 WL 1286133, at *5 (quoting

Merrill Lynch, 773 F. Supp. 2d at 346-47). [D]isagree[ment] with the Boards conclusion does

not state a claim. Grimes, 673 A.2d at 1220. A complaint that generally asserts that the refusal

could not have been the result of an adequate, good faith investigation since the Board decided

not to act on the demand likewise fails. Id. Such conclusory, ipse dixit, assertions are incon-

sistent with the requirements of . . . Rule 23.1. Id.

Even if this case were the easy winner Starr portrays in its lengthy recitation of

alleged (albeit without citations) undisputed facts and admissions of the Government (2d Am.

Compl. 192-204), Starrs wrongful refusal claim would still fail as a matter of law. Con-

scientious managers may conclude that legal action is unjustified because not meritorious, or

because it would subject the firm to injury. Kamen v. Kemper Fin. Servs., Inc., 939 F.2d 458,

462 (7th Cir. 1991). A board may decide against bringing an action even if the suit has some

merit where the litigation costs and the adverse effect on the business relationship between the

corporation and the potential defendant might outweigh any potential recovery in the lawsuit.

Cramer v. Gen. Tel. & Elecs. Corp., 582 F.2d 259, 275 (3d Cir. 1978). Many decisions re-affirm

this principle. See, e.g.,

x Zapata Corp. v. Maldonado, 430 A.2d 779, 788 (Del. 1981) (the final substantivejudgment whether a particular lawsuit should be maintained requires a balance of

pursuing Starrs claims in any form wouldnt be in the best interests of the corpo-ration. Thats pretty straightforward.



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many factors ethical, commercial, promotional, public relations, employee rela-tions, fiscal as well as legal) (emphasis added, citation omitted), quoted in Gam-oran, 2013 WL 1286133, at *5;

x In re Delta & Pine Land Co. Sholders Litig., 2000 WL 875421, at *7 (Del. Ch.

June 21, 2000) ([i]n forming their business judgment about whether to sue,Deltas board should consider all adverse consequences that might result frombringing a suit, such as the cost of litigation, the potential to temporarily paralyzethe company and . . . the possibility that such a suit will strain existing contractualrelations) (emphasis added);

x In re InfoUSA, Inc. Sholders Litig., 953 A.2d 963, 986 (Del. Ch. 2007) (Aboard may in good faith refuse a shareholder demand to begin litigation even ifthere is substantial basis to conclude that the lawsuit would eventually be success-ful on the merits. It is within the bounds of business judgment to conclude that alawsuit, even if legitimate, would be excessively costly to the corporation or harmits long-term strategic interests.) (emphasis added);

x Carlton Invs. v. TLC Beatrice Intl Holdings, Inc., 1997 WL 305829, at *11 (Del.Ch. May 30, 1997): ([T]he [corporation] is not required to attempt to maximizereturns from the lawsuit. The whole point of recognizing the boards authority andresponsibility in this context is to allow the boards judgment concerning what isin the long-run best interest of the corporation to be acted upon. That may not bethe same as maximizing the return from the law suit. The [corporation] can legiti-mately sacrifice present compensation . . . if its good faith, informed judgmentindicates to it that that course is best for the corporation.) (emphasis added);

x In re Consumers Power Co. Derivative Litig., 132 F.R.D. 455, 485 (E.D. Mich.

1990) (two areas of consideration are relevant: (1) the merits of the case . . . . (2)Even if there is a meritorious suit against the directors of a corporation, shouldsuch an action be maintained in light of other factors? In other words, once otherfactors are evaluated, might bringing the derivative action work a potentiallygreater harm to the corporation than any possible gain from that action?) (em-phasis added).

The boards right to determine whether litigation will serve the best interests of the corporation

and its shareholders thus holds true even if meritorious claims are made in a demand; a board

may forego litigation if, in exercising its business judgment, the board decides that it is best for

the company not to do so. In re VistaCare, Inc., Derivative Litig., 2007 WL 2460610, at *2 (D.

Ariz. Aug. 23, 2007) (Delaware law). Accordingly, [i]f the derivative plaintiff fails to meet [its]

pleading burden with respect to the demand requirement, the complaint must be dismissed,



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even if the claims asserted appear to have merit. Ferre v. McGrath, 2007 WL 1180650, at *3

(S.D.N.Y. Feb. 16, 2007) (Delaware law).

On this ground alone, the AIG boards refusal of Starrs demand was plainly

rational. The boards letter refusing Starrs demand shows consideration of the substantial harm

AIG might suffer pursuing the action, including damage to AIGs corporate brand and image,

relationships with shareholders, customers, regulators and elected officials and the impact on

AIGs Thank You America television and newspaper campaign highlighting AIGs repayment

of federal loans and the profit the United States earned in connection with those loans. Dkt. No.

87-1 at 5-6. Id. at 6. Pursuing claims against the Government plainly threatened to destroy

much of the work that AIG and its employees had done rebuilding AIG and its name and

reputation since 2008, and AIGs directors noted media coverage and statements by elected

officials highly critical of AIG for even considering the demand. Starrs allegation that [n]or

did the Board identify or value the harm, if any, that would result from simply permitting this

litigation to proceed (2d Am. Compl. 214) is absurd: AIGs letter refusing Starrs demand

identifies all of these harms. Ex. 87-1 at 5-6, 7. There was no need to formally value these

obviously incalculable harms.

This case also is simply not the easy winner Starr portrays. This Court has not,

as Starrs counsel claims, already ruled as a matter of law that the government had no right to

exact AIGs equity as a condition of loaning the company money or to take AIG assets to con-

duct backdoor bailouts of other favored companies. David Boies, Give AIG Shareholders

Their Day In Court, USA Today, Jan. 8, 2013 (Ex. 12). This Court has simply denied a motion

to dismiss in a decision that emphasizes that it makes no determinations as to the ultimate

merits of Starrs claims and acknowledges the complexity of this case. Starr, 106 Fed. Cl. at



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69 and 107 Fed. Cl. at 377.

Unlike this Court on a motion to dismiss, AIGs board was not required to accept

the truth of Starrs factual allegations concerning the events of September 2008 and subsequent

months. AIGs board could and did evaluate the available evidence, marshaled in Starrs

presentations to the board (Dkt. Nos. 87-5, 87-9, 87-13, 87-24 and 87-26 at 4-39) and assess

what Starr likely could ultimately prove. The boards letter refusing Starrs demand shows that

the board considered Starrs and the Governments competing legal positions, assisted by its own

counsel and prominent constitutional and financial regulation experts, including Erwin Chemer-

insky, the dean of the University of California Irvine School of Law and one of the leading

constitutional law scholars in the United States, and John Coates, Professor of Law and Eco-

nomics at Harvard Law School and a leading expert on the regulation of financial institutions.

See Ex. 87-1 at 3-5, describing boards discussion of

x the thoughtful decisions issued by the judges in the Court of Federal ClaimsAction and New York Action,

x consideration of the fact that Starr has already survived a motion to dismiss inthe Court of Federal Claims Action,

x the views of Dean Chemerinsky and Professor Coates concerning the merits ofStarr claims,

x potential damages,

x the Governments claim that AIG is obligated to indemnify the Government fordefense costs and any judgment in AIGs favor,

x defenses to Starrs claims, including a severability provision stating that equiva-

lent value would be paid in another form if the Governments contractual right toreceive a 79.9% equity interest in AIG was invalid, and the Governmentscontention that equity and fairness precludes AIG from enjoying the benefits of$185 billion in federal assistance and then asserting that the assistance wasunlawful, and

x with respect to Starrs ML III claims, AIG managements view that the ML IIItransaction served AIGs best interests by resolving AIGs credit default swap



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issue and preventing further downgrades and collateral calls, AIGs negotiation ofthe profit split with FRBNY in ML III that Starr has questioned, and the fact thatthe releases Starr challenges that AIG provided to counterparties in the ML IIItransaction had limited, if any, value, due to representations, disclaimers and otherlanguage in the credit default swap contracts AIG had entered into with its

counterparties).

Under Delaware law, the court must presume each statement in a letter refusing

a demand to be true absent a particularized allegation rebutting this statement. Scattered, 701

A.2d at 76 n.24; see also Levine, 591 A.2d at 214 (affirming grant of motion to dismiss where

GMs letter reply is inconsistent with, and thus diminishes the force of, plaintiffs allegation

that the Board did nothing) (citation omitted); Mount Moriah Cemetery v. Moritz, 1991 WL

50149, at *4 (Del. Ch. Apr. 4, 1991) (the letter from counsel to the Special Committee that was

attached to the complaint states that there was a full discussion of the Special Committees

Report, and [a]lthough plaintiff may not agree with this description, there is nothing in its

complaint to contradict it), affd, 599 A.2d 413 (Del. 1991). Starr alleges no facts much less

particularized facts rebutting any of these statements in AIGs letter refusing Starrs demand.

For sure, no one has a crystal ball concerning the outcome of this litigation and

knows how Starrs derivative claims would fare if tried and appeals heard. But AIGs board did

know that Starr has a challenging road to travel before obtaining any recovery on its derivative

claims. The business judgment rule protects a decision to refuse a shareholder demand unless

the decision cannot be attributed to any rational business purpose. The AIGs boards decision to

refuse Starrs demand was obviously rational, on any number of grounds. AIGs board was

advised by its counsel and experts that Starrs likelihood of success on the merits is low. AIG

faces substantial indemnification claims by the Government under various of AIGs loan and

other agreements with the Government. And AIGs pursuit of claims against the Government

threatens harm to AIGs corporate brand and image, and relationships with shareholders, cus-



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tomers, regulators and elected officials, as confirmed by the widespread media and congressional

reaction to even the possibility that AIG would sanction such a suit.

2. Starrs Allegations Concerning Government Threats and Intimidation

and a Government-Sponsored Public Relations Campaign Do NotOvercome the Business Judgment Rule Presumption

Starr alleges that [t]he Government . . . threatened the AIG Board with the pur-

pose and effect of intimidating AIG and its directors into acting to halt this litigation and

mounted a campaign . . . to intimidate the AIG Board that condemned the AIG Board for even

considering, much less accepting, the demand. 2d Am. Compl. 208-09. But Starr alleges no

facts much less with particularity showing Government involvement in the news reports and

media attention to the AIG boards consideration of Starrs demand that Starr calls intimida-

tion.

Even if Starr did allege such facts, those facts would not transform a rational

board decision into an irrational one. The boards concern that pursuing claims against the

Government threatened to destroy much of the good work that AIG and its employees had done

rebuilding AIG and its name and reputation following the September 2008 financial crisis and

FRBNY loan (Ex. 87-1 at 6) was an obvious factor for the AIGs board consideration and that

the board was focused on from the start of the demand process. Ex. 87-4 at 4, Oct. 1, 2012

Protocol Question 3(b). What rational director would not consider the reputational and other

harm AIG would face if it sued the Government and AIGs principal regulator? The media

coverage of AIGs January 9, 2013 board meeting and statements made by elected officials and

regulators highly critical of AIG for even considering the demand simply confirmed the impor-

tance of these concerns.

Starr also alleges that the Government threatened AIGs board by indicat[ing]

that the Government would terminate any cooperative relationship with AIG and heavily



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scrutinize AIGs SEC, tax, and other filings if AIG sued the Government (or allowed Starr to

sue the Government in AIGs name). 2d Am. Compl. 208. Again, Starr offers no particular-

ized facts in support of this allegation. Treasurys counsel, during the Governments January 9,

2013 presentation to AIGs board (the transcript of which is attached to AIGs letter refusing the

demand), stated that if AIG endorses this litigation the government will be your adversary

because AIG will be positioning itself in direct opposition to and attacking the Department

of Treasury and FRBNY, and that the cooperative relationship AIG now enjoys with those

institutions will be terminated. Dkt. No. 87-26 Tr. at 61. Treasurys counsel added that

another wave of congressional investigations could follow in which AIG employees and AIG

Board members could be called to testify before Congress and justify the decision to pursue a

lawsuit asking the U.S. taxpayers to return billions of dollars to AIG. Id. at 62. Starr may

characterize these statements as threats, but they are simply facts that AIGs board had a

fiduciary duty to consider in determining whether a suit by AIG against the Government would

serve the best interests of AIG and its shareholders.

3. Starrs Allegations That AIGs Directors Refused the Demand Too

Quickly Do Not Overcome the Business Judgment Rule Presumption

Starr alleges that the boards refusal of Starrs demand is not protected by the

business judgment rule because AIGs board acted too quickly. According to Starr, the board

did not take the several weeks it had stated to this Court it would take to make a considered

decision following the presentations to it on January 9, 2013 and instead rejected the demand

. . . less than three hours after those presentations ended. 2d Am. Compl. 216.

AIGs board undertook an unprecedented four month process involving extensive

written submissions and oral presentations on January 9, 2013 concerning Starrs demand and

informed the Court at the outset that a decision was expected by the end of January 2013 (Dkt.



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No. 57 at 4) not, as Starr alleges, it would take several weeks . . . to make a considered deci-

sion. 2d Am. Compl. 216. On January 8, 2013, following receipt of three rounds of briefing

totaling 184 pages (plus voluminous exhibits), AIGs board met with counsel and discussed the

submissions the board had received, and also considered the media and congressional reaction to

the boards consideration of the demand. Ex. 87-1 at 6. The board determined to carefully con-

sider the parties presentations the next day, and, then, in light of the scrutiny AIG was re-

ceiving regarding the Demand, . . . make a determination and announce the determination as

promptly as practicable. Id.

The board was not required to extend by several weeks an already four-month

long process and further extend the delay Starrs belated demand was creating for this Court in

this litigation to think more about a decision the directors believed was in AIGs interest to be

made as promptly as practicable in light of the public, congressional and regulatory reaction to

the boards consideration of the demand. Courts all the time decide motions and other disputes

on written submissions or during oral arguments, without waiting several weeks to make a

decision the courts consider themselves ready before or during oral argument. A board consider-

ing a shareholder demand need do no more.

4. Starrs Allegations That AIGs Directors Lacked Disinterestedness

and Independence Do Not Overcome the Business Judgment Rule

Presumption

a. The Making of a Demand Waives Any Claim That Directors

Lack Disinterestedness and Independence

The Delaware Supreme Court has held repeatedly that [w]here a demand has

actually been made, the stockholder making the demand concedes the independence and disinter-

estedness of a majority of the board to respond. Rales, 634 A.2d at 936 n.12; see also Scattered,

701 A.2d at 74 ([i]f the stockholders make a demand, . . . they are deemed to have waived any



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claim they might otherwise have had that the board cannot independently act on the demand);

Grimes, 673 A.2d at 1215 (The Court of Chancery held that, by making demand upon the

board, plaintiff has in effect conceded that the board was in a position to consider and act upon

his demand. . . . We agree.) (citation omitted); Levine, 591 A.2d at 212 ([a] shareholder

plaintiff, by making a demand upon a board before filing suit, tacitly concedes the independence

of a majority of the board to respond) (quoting Spiegel, 571 A.2d at 777).

On this point, Delaware law could hardly be clearer. FLI Deep Marine LLC v.

McKim, 2009 WL 1204363, at *3 (Del. Ch. Apr. 21, 2009); see also Lambrecht v. ONeal, 2012

WL 6013440, at *3 ([b]y making a demand upon the Board, [Lambrecht] has conceded the

Boards independence) (2d Cir. Dec. 4, 2012); In re Sonus Networks, Inc., Sholder Derivative

Litig., 499 F.3d 47, 67 n.11 (1st Cir. 2007) (by making a demand, the shareholder concedes that

the board was sufficiently disinterested and independent to consider the demand).

Starr alleges that Starr agreed to make a demand . . . subject to a stipulation with

AIG on September 5, 2012 that provided that Plaintiff could still assert that the demand was

wrongfully refused and/or not required as a matter of law. 2d Am. Compl. 190; see also id.

219 (Plaintiff and AIG stipulated that Plaintiff reserved all rights concerning demand). The

stipulation also provided that AIG may respond with any and all arguments (Dkt. No. 64-1 at

4), and, under Delaware law, a shareholder cannot preserve its right to, in essence, cover all the

bases by arguing that demand was both excused and wrongfully refused. Boeing Co. v.

Shrontz, 1992 WL 81228, at *5 (Del. Ch. Apr. 20, 1992) (decision by now Delaware Supreme

Court Justice Carolyn Berger).

Accordingly, by making a demand, Starr has conclusively conceded the

independence of the Board and is precluded from now arguing that demand should be excused



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because the directors are conflicted. FLI, 2009 WL 1204363, at *3, quoted in Merrill Lynch,

773 F. Supp. 2d at 346. This Court need go no further in addressing Starrs claim that AIGs

directors lacked the independence required to consider Starrs demand that AIG sue the

Government.

b. Starr Alleges No Facts Showing that AIGs Board Lacked

Disinterestedness and Independence

(i) The Governments Alleged Control of the Election of

AIG Directors Does Not Establish A Lack of

Disinterestedness or Independence

Starr contends that AIGs board lacked disinterestedness and independence

because the Government held a majority of AIGs voting shares until December 14, 2012 and

thus controlled the election of AIG directors when this action was filed on November 21, 2011.

2d Am. Compl. 183. Delaware law is clear and to the contrary. [E]ven proof of majority

ownership of a company does not strip the directors of the presumptions of independence.

Aronson, 473 A.2d at 815, quoted in Beam, 845 A.2d at 1054 n.37; see also Weinstein Enters.,

Inc. v. Orloff, 870 A.2d 499, 512 (Del. 2005) ([a] controlling interest or majority stock own-

ership does not deprive the corporations directors of the presumptions of independence, and

that their acts have been taken in good faith and in the best interests of the corporation) (quot-

ing Aronson); In re IAC/InterActiveCorp

Documents

A.I.G.'s Request to Bar Greenberg Derivative Lawsuit