During the trial, David Boies was his usual mildly rumpled and mostly unpretentious self, peering over his reading glasses, padding around in his hallmark black suede slipper-shoes and smiling his way to victory in a case that put the U.S. reaction to the financial crisis on trial.
Along the way, Boies won the lion’s share of procedural points as he hammered his theme that the government’s treatment of American International Group Inc. — and his client, Starr International Co., then AIG’s largest shareholder — wasn’t fair. U.S. Court of Federal Claims Judge Thomas Wheeler agreed, ruling the Federal Reserve set illegal conditions for an $85 billion rescue loan to AIG in September 2008, though he didn’t award damages.
The loan saved the insurer from bankruptcy, but it came with a 12 percent interest rate and gave the U.S. an 80 percent stake until AIG could pay it off. Boies said that amounted to “extortion” and took every opportunity to compare it to the generous terms enjoyed by the Wall Street banks that were famously bailed out.
“From a matter of pure professional satisfaction, it’s a victory, a considerable intellectual achievement,” said Patrick O’Donnell, a Washington-based attorney not involved in the case. It’s “a remarkable result in having the court declare the government’s action illegal.”
Over eight weeks, Boies questioned most of the 36 witnesses himself, a task shared on the government side by at least seven lawyers. They repeatedly earned rebukes from the judge for missteps, such as reading lengthy records already in evidence and using redacted documents in violation of the rules, while Boies suffered relatively few reprimands.
The 74-year-old lawyer’s career history of 85 trials includes 10 with more than $1 billion at stake — and in this one the sum requested by plaintiffs was $25 billion, which the judge determined wasn’t warranted however badly the Fed acted.
Even so, the ruling solidifies Boies’s reputation for winning long-shot cases, said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. It’s “another notch, one of those signature victories.”
Boies didn’t respond to requests for comment.
Some of his best-known cases haven’t involved money. In December 2000, he represented Vice President Al Gore in the U.S. Supreme Court case that handed the presidency to George W. Bush, and 13 years later teamed up with his adversary in that proceeding to win the high-court appeal that overturned California’s ban on gay marriage.
In Wheeler’s courtroom in Washington, Boies represented Starr International, Greenberg’s private investment holding company and AIG’s largest shareholder before the bailout. Boies was backed by a team from his own firm, Boies, Schiller & Flexner LLP, and from Skadden, Arps, Slate, Meagher & Flom LLP.
His mastery of the complex proceedings appeared to win over Wheeler, who at times seemed to defer to the lawyer, asking him in one instance what he thought about a government objection to his questioning of New York Fed official Sarah Dahlgren. Boies was self-deprecatingly magnanimous.
“I think the objection is well-taken, your honor,” he told Wheeler, adding that he “was asleep at the switch” when he had failed to object to similar behavior by Justice Department lawyers.
Again and again, Boies zeroed in on what he portrayed as the government’s biased treatment and harsh depiction of AIG. “They tried to demonize AIG and suggest somehow that AIG was a poster child for problems during the financial crisis,” he said in his opening statement Sept. 29.
He made the case throughout the eight-week trial that AIG wasn’t a villainous behemoth threatening the global economy with its underwriting of toxic securities but a victim of regulators intent on protecting Goldman Sachs Group Inc., Morgan Stanley and other big Wall Street banks at the insurer’s expense, and making a few bucks in bargain.
His fairness argument gave the judge a way to think about the case beyond the legal fine points, said Kenneth Feinberg, who was a federally appointed special master for 9/11 victims and other funds and who oversaw compensation for AIG executives as part of the bailout.
“He focused on the disparity and how AIG became a kind of punching bag for public unhappiness for the crisis itself,” said Feinberg, who’s known Boies since they worked together on the staff of the Senate Judiciary Committee 40 years ago. “It provides the judge an additional argument, quite apart from the technicalities, on what is fairness, what is equitable?”
The claims of bias resonated enough that Wheeler brought them up during the government’s closing argument April 22.
“The thing that still perplexes me is, I don’t understand why the moral hazard and the risk with regard to AIG is any different than it was with Morgan Stanley, Bank of America, Citibank, any of those, Goldman Sachs,” Wheeler told government lawyer Kenneth Dintzer. “Does it really justify an interest rate that’s four times higher and the taking of an 80 percent equity interest? I mean, nobody else had that kind of arrangement.”
–With assistance from Andrew Zajac in Washington
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