View this article online: https://www.insurancejournal.com/news/national/2009/09/01/103424.htm
A U.S. judge ruled on Monday against American International Group in the insurer’s legal battle with Starr International Co., affirming a July jury verdict that Starr did not breach a trust.
At issue in the case brought in 2005 were two claims that AIG made against Starr International, which is run by former AIG Chief Executive Maurice “Hank” Greenberg.
AIG sought $4.3 billion of damages to recover millions of its shares held by Starr and to get compensation for stock sold. AIG also claimed that Starr International breached an oral agreement that Starr’s AIG shares would be used to fund an executive retirement scheme for generations of AIG employees.
In a 58-page written judgment, Judge Jed Rakoff in U.S. District Court in Manhattan underlined a jury’s July 7 finding that prevented the bailed-out insurer’s bid to collect $4.3 billion in damages.
He also said the court found “that AIG has failed to prove SICO’s liability on AIG’s counterclaim for breach of an express trust.”
A spokesman for AIG declined to comment on the judge’s ruling.
Greenberg and Starr’s lawyer, David Boies of Boies, Schiller & Flexner, said in a statement, “This dismisses AIG’s only remaining claim against Starr International. Another federal judge had already dismissed AIG’s other claims in June 2008.”
Separately on Monday, AIG, Greenberg and former AIG Chief Financial Officer Howard Smith jointly announced that they had agreed to terms for arbitration of their various legal disputes.
ORAL TRUST ARGUED
AIG had sought to establish that an oral trust had been created in 1970, entrusting Starr International to use a block of AIG shares acquired in a company restructuring for company retirement programs for AIG employees. It charged Starr with breach of that trust, and with a second claim of conversion related to sales of the stock for the company’s own use.
The jury ruled on the two claims after a three-week trial and the judge was left with a final decision on the breach of trust claim.
On Monday, Rakoff wrote that “the law will not recognize such an oral trust unless the evidence of its creation is unequivocal … this is a burden that AIG has not come close to shouldering.”
Greenberg, 84, was forced out of AIG in 2005 after 38 years as CEO for failure to cooperate with an internal investigation into accounting practices at the insurer that once claimed global dominance.
AIG and privately held Starr International, often referred to as SICO, were closely aligned until Greenberg left AIG. He kept control of Starr and its large block of AIG shares, worth in excess of $23 billion at the time.
Over time, Greenberg sold some of the stock and started investing in businesses that have at times competed against his former company.
The retirement fund was cut off within days of Greenberg’s ouster from AIG in 2005, ending a lucrative plan that had enriched hundreds of senior managers for 35 years.
Greenberg testified for several days at the trial in June and July. The judge wrote in his ruling that he believed the eight jurors did not credit parts of his testimony.
“Similarly, the court, having made its independent assessment of Greenberg’s credibility, concludes that his testimony and the truth did not always converge; but the inaccuracies were not as material as AIG argued nor warranted the sweeping adverse inferences AIG hypothesized.”
The judge said the inaccuracy “sometimes simply evidenced confusion on his part. At other times it was the product of prevarication, but not to the point of making a material difference in the court’s overall assessment of the evidence.”
He said at other times Greenberg’s testimony was “entirely truthful.”
“In the end, however, it was the other evidence, and not Greenberg’s testimony, that this Court found persuasive in reaching its verdict,” the judge said.
The case is: American International Group v Starr International Company Inc 05-6283 in U.S. District Court for the Southern District of New York (Manhattan)
(Reporting by Grant McCool)