[00:00:00] Speaker 04:
Team 5103, Star International Company versus the United States.

[00:00:48] Speaker 04:
OK, I think we're ready.

[00:00:49] Speaker 02:
Thank you.

[00:00:51] Speaker 02:
May it please the court, my name is David Boyce, and I represent the plaintiffs.

[00:00:56] Speaker 02:
In this case, we have two appeals.

[00:00:58] Speaker 02:
And I think it's worth spending a moment at the outset to distinguish between what's involved in those two appeals.

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The court below found that there was an illegal exaction when the government demanded and acquired 80% of the

[00:01:16] Speaker 02:
AIG shareholders' equity and voting control.

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The court also held that there was no remedy for that because, based on this court's A&D decision, the court believed it had to do an economic analysis.

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And it concluded that the value of the authorized loan exceeded the value of what was illegally exacted.

[00:01:40] Speaker 01:
Mr. Boyce, would you agree that, well, let me ask you, is 13-3 money mandating

[00:01:47] Speaker 02:
It is money-mandating in the following sense, Your Honor.

[00:01:51] Speaker 02:
It provides for a specific amount of consideration that is compensation and everything else.

[00:01:59] Speaker 02:
Do you have authority?

[00:02:00] Speaker 02:
For authority for the proposition that it's money-mandating.

[00:02:05] Speaker 02:
Yes.

[00:02:06] Speaker 02:
And if the court will commit, I will get that while I'm addressing the court's other questions.

[00:02:14] Speaker 02:
But what this court has held,

[00:02:17] Speaker 02:
is that in the Fifth Amendment context, the Fifth Amendment violation is itself money-mandating.

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That is, if there is an illegal exactions.

[00:02:27] Speaker 02:
So you're going down two different roads, though.

[00:02:31] Speaker 02:
I think in the context of illegal exactions, it is the same road rock.

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I think in the context of illegal exactions, where you have something that is clearly improperly and without authorization exacted, that is what is mandated.

[00:02:46] Speaker 02:
to be returned to the citizen.

[00:02:49] Speaker 02:
I would agree if the court's question is, is there a provision in the statute that says, if you take it, you have to give it back?

[00:02:57] Speaker 02:
There is not a provision in the statute that says, if you take it, you have to give it back.

[00:03:00] Speaker 01:
Because we have to go down.

[00:03:02] Speaker 01:
I mean, you know perfectly well we're going to run all across this analysis the whole way.

[00:03:06] Speaker 01:
So we have to go down all those roads to follow.

[00:03:09] Speaker 01:
Yes, Your Honor.

[00:03:10] Speaker 01:
I think that's exactly right.

[00:03:12] Speaker 03:
And I'm going to do my best to do it in the time that I have.

[00:03:15] Speaker 03:
Are you addressing the standing issue at this point in your argument?

[00:03:18] Speaker 03:
I can, Your Honor.

[00:03:20] Speaker 03:
OK.

[00:03:20] Speaker 04:
I'll just say at the outset, this is a little unusual, because you've got your claim, and it deals exclusively with the damages problem.

[00:03:26] Speaker 04:
And then your friend has the burden and comes up on the others.

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But certainly, we expect that if we have questions, you'll be prepared to be responsive.

[00:03:34] Speaker 02:
Exactly.

[00:03:35] Speaker 02:
I'm prepared to deal with both of those now, as I assume they will too.

[00:03:41] Speaker 02:
But with respect to the standing issue, I think there are three important aspects of that.

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First, as the court below held, and we think correctly, the issue of control is relevant under Delaware law.

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That's the point of my concern.

[00:04:01] Speaker 03:
And when I look at standing, I look at the issue of control.

[00:04:05] Speaker 03:
It seems to me that you argue

[00:04:07] Speaker 03:
that the government exerted control in at least two different instances, maybe more.

[00:04:12] Speaker 03:
But going into the bailout and the negotiations, that there was control exerted there, and then control after the negotiations, and once they took 80% of the assets of the company.

[00:04:28] Speaker 02:
Does that?

[00:04:29] Speaker 02:
I think so, Your Honor.

[00:04:30] Speaker 02:
I might refine it just one bit.

[00:04:32] Speaker 02:
There's the issue of control on September 16, and then there's the issue of control

[00:04:37] Speaker 02:
September 17th through 22nd.

[00:04:39] Speaker 02:
September 22nd was the date that the voting control and equity was actually exacted.

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So the cases that we deal with with control in corporate law, it's when an entity assumes a function or performs a function that's normally preserved to the board.

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What function is it that the government took in and performed that is traditionally a board function?

[00:05:10] Speaker 02:
What the government did, and the court found this is a factual matter, Your Honor.

[00:05:15] Speaker 02:
This is one of the distinctions that I was going to draw between their appeal and our appeal.

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Our appeal raises a single legal question.

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Their appeal, they must convince the court not only that the trial court was wrong as a matter of law, but they must convince this court to disregard the

[00:05:32] Speaker 02:
trial court's factual findings, because the court found as a matter of fact that the government controlled a... Well, wait a minute.

[00:05:41] Speaker 04:
Let me just go back a little, and that is my understanding, so tell me if you disagree, is that the basis for the court of claims finding standing, and that's another question I have, because it's not clear whether he actually found it or not.

[00:05:53] Speaker 04:
He seemed to set it aside a little.

[00:05:55] Speaker 04:
But in any event,

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You don't seem to embrace, as far as I can tell from your briefs, the theory upon which the court of federal claims rested to find standing.

[00:06:05] Speaker 04:
That is, the court of federal claims said,

[00:06:08] Speaker 04:
They're looking at the Delaware cases, and they're saying, this is enough like Gatz and Rosette, because even though we don't have shareholder control, there's still a fiduciary, there's no fiduciary duty, which is what those court cases spoke to.

[00:06:22] Speaker 04:
But I'm going to find there's a duty because the government has obligations as undertakings law, right?

[00:06:28] Speaker 04:
I didn't see where you kind of embraced that.

[00:06:31] Speaker 04:
Your argument and your brief seem to be exclusively based on control, not shareholder control, but just this theory of control, but not the analogy the court of claims drew between fiduciary obligations being analogous to taking duties.

[00:06:49] Speaker 02:
I apologize for our lack of clarity, Your Honor.

[00:06:51] Speaker 02:
We do embrace that finding.

[00:06:53] Speaker 04:
How do you make that leap, then?

[00:06:55] Speaker 02:
Because the purpose of control under Delaware law

[00:06:58] Speaker 02:
is to create a duty.

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In other words, somebody who is not the board may not have a duty unless there is control.

[00:07:07] Speaker 02:
Here, as the trial court found, there was a duty under the Fifth Amendment so that you don't need control here.

[00:07:16] Speaker 02:
The first proposition is that we do not believe that you actually need to find control.

[00:07:21] Speaker 02:
However, we believe that you do find control.

[00:07:25] Speaker 02:
Now, in addition to that, I just want to be sure that I remind the court that we're arguing that under federal law, under Allegheny, there is standing as long as you have the kind of requisite impact that you do have here.

[00:07:41] Speaker 02:
That is, you do not have to rely just on Delaware law.

[00:07:44] Speaker 01:
That's right.

[00:07:44] Speaker 01:
Under the constitutional standing argument, though, your first element is injury and fact, right?

[00:07:50] Speaker 01:
Yes, injury and fact.

[00:07:52] Speaker 01:
OK.

[00:07:53] Speaker 01:
Particularization is necessary to establish injury, in fact.

[00:07:58] Speaker 01:
Show me the evidence in the record that establishes particularization.

[00:08:02] Speaker 02:
That what happened was 80% of the voting control and 80% of the equity of the plaintiffs was taken by the government.

[00:08:13] Speaker 02:
Before September 22nd.

[00:08:15] Speaker 02:
Was STAR affected differently than other shareholders?

[00:08:18] Speaker 02:
Star was not affected differently than other shareholders with respect to the fact that it lost 80% of its voting control and equity.

[00:08:29] Speaker 02:
It was affected differently because it's larger.

[00:08:31] Speaker 02:
But in terms of the proportional effect, it was not proportionally affected differently.

[00:08:37] Speaker 03:
Counselor, you say the garment took 80%, but really the board voted this.

[00:08:42] Speaker 03:
The board granted the 80%.

[00:08:45] Speaker 03:
It wasn't controlled by the government, was it?

[00:08:47] Speaker 02:
But what the trial court found was that the demand for preferred stock with votes was presented to the board the evening of September 22nd.

[00:09:01] Speaker 02:
They weren't even told about it.

[00:09:03] Speaker 02:
When they voted on it, they didn't even have a copy of the agreement.

[00:09:09] Speaker 02:
In fact, the agreement was changed after the vote.

[00:09:12] Speaker 02:
without the board's approval.

[00:09:14] Speaker 02:
What the district court found was that by taking control on September 17th, 18th, 19th, and 20th, the board was not, in effect, in control at that point.

[00:09:28] Speaker 03:
Why, because the government was a majority stockholder?

[00:09:31] Speaker 03:
I'm sorry, sorry.

[00:09:32] Speaker 03:
Because the government was a majority stockholder?

[00:09:34] Speaker 02:
No, no, but because the government at that point exercised the total ability

[00:09:40] Speaker 02:
to put the company into bankruptcy, not put the company into bankruptcy.

[00:09:43] Speaker 02:
That is to say, not to loan more money.

[00:09:46] Speaker 02:
No, not only not to loan more money, Your Honor, it was to call the demand notes that had been issued.

[00:09:52] Speaker 02:
Now, I also want, just to keep this whole thing in context, because as the Court says, there are a lot of paths we go down.

[00:10:04] Speaker 02:
This is a case in which the government explicitly targeted

[00:10:09] Speaker 02:
these shareholders specifically said we want to punish these shareholders.

[00:10:15] Speaker 02:
Star.

[00:10:15] Speaker 02:
Star.

[00:10:17] Speaker 01:
Where did it say it wanted to punish Star as opposed to the shareholders?

[00:10:23] Speaker 01:
By the shareholders I meant including Star.

[00:10:26] Speaker 01:
Including Star.

[00:10:28] Speaker 01:
And punish

[00:10:29] Speaker 01:
as it was explained was in the abstract sense of the market punishes them.

[00:10:33] Speaker 02:
No, no, Your Honor, not at all.

[00:10:37] Speaker 02:
That wasn't said?

[00:10:38] Speaker 04:
Wasn't that Paulson's testimony?

[00:10:41] Speaker 02:
Here's what Paulson said.

[00:10:43] Speaker 02:
Paulson said a number of different things.

[00:10:44] Speaker 02:
And the district court had to sort out what to rely on, what not to rely on.

[00:10:50] Speaker 02:
District court heard the evidence, assessed credibility.

[00:10:54] Speaker 02:
And the district court's, the trial court's finding that this was a punitive purpose is supported by a lot of testimony, including what Mr. Paulson said at one point, quote,

[00:11:06] Speaker 02:
It was important to be seen as being harsh and punitive to the AIG shareholders in order to quell possible opposition to TARP and other further assistance.

[00:11:17] Speaker 02:
That's it.

[00:11:18] Speaker 01:
That was the moral hazard argument.

[00:11:22] Speaker 02:
That's not a moral hazard.

[00:11:24] Speaker 02:
To say quell possible opposition to TARP and other further assistance, that's not a moral hazard argument, I suggest, Your Honor.

[00:11:32] Speaker 01:
I suggest that my reading of the record was that when they said, at least the testimony I recall reading, was that when the statement was made about it being important to be harsh, it was made in the context of moral hazard.

[00:11:46] Speaker 01:
Am I not following that?

[00:11:50] Speaker 02:
No, I don't think that part of it is accurate, John.

[00:11:54] Speaker 02:
He did talk about moral hazard in other parts, but I don't think that was what we were referring to here.

[00:11:59] Speaker 02:
In addition,

[00:12:01] Speaker 02:
Treasury Chief Restructuring Officer and their 30B6 witness testified that the Federal Reserve took nearly 80% of AIG's fully diluted common equity, quote, to penalize the shareholders of the company.

[00:12:17] Speaker 02:
Secretary Geithner, we force losses on shareholders proportionate to the mistakes of the firm.

[00:12:24] Speaker 02:
Now, regardless of whether it's moral hazard or not, I don't think this is just moral hazard.

[00:12:30] Speaker 02:
But regardless of whether it's moral hazard or not, there can be no doubt that they are specifically targeting the shareholders to take something away from the shareholders, for good reason or for bad, but not start.

[00:12:42] Speaker 02:
All the shareholders, Your Honor, all the shareholders.

[00:12:46] Speaker 02:
And what I'm saying is I don't think there's ever been a case in federal jurisprudence in which the government has targeted a particular group of people to take something away from them, for good reason or for bad.

[00:13:00] Speaker 02:
And the courts have said those people don't have standing to challenge the government action.

[00:13:06] Speaker 02:
In the Allegheny case, it was far less, far less extreme than we have here.

[00:13:11] Speaker 02:
In the Allegheny case, all you had was a order of the Interstate Commerce Commission that permitted the issuance of preferred stock that would dilute everybody.

[00:13:25] Speaker 02:
It would dilute everybody equally, everybody equally in Allegheny.

[00:13:29] Speaker 02:
And yet the court held that shareholders had standing.

[00:13:36] Speaker 02:
I want to reserve some time for rebuttal.

[00:13:38] Speaker 04:
No, we'll restore your rebuttal time.

[00:13:40] Speaker 04:
But let me take you back to where we started, I think, which is the damages question.

[00:13:44] Speaker 02:
Yes.

[00:13:44] Speaker 04:
So the damages can't be the entire value of the stock right.

[00:13:49] Speaker 04:
We have to compute some value.

[00:13:51] Speaker 04:
The value lost here, you allege, is the diminution of the voting rights, of the voting rights, right?

[00:13:59] Speaker 02:
It's the voting right and the equity.

[00:14:01] Speaker 02:
It's the combination.

[00:14:04] Speaker 04:
So they didn't exact the stock.

[00:14:06] Speaker 04:
That's what they exacted.

[00:14:08] Speaker 04:
Did you have an expert testify as to what portion of the stock value of the stock share is worth $3.50?

[00:14:17] Speaker 04:
What value of that we can assess to the voting rights and the equity rights?

[00:14:23] Speaker 02:
Well, the voting rights and the equity rights combined together were the entire value of the stock.

[00:14:35] Speaker 02:
What we had, what the district trial court focused on, was the profits that they got from what they illegally exacted.

[00:14:43] Speaker 02:
In other words, the government illegally exacted the equity and the voting rights.

[00:14:51] Speaker 02:
And it then sold that.

[00:14:53] Speaker 02:
And you can calculate what the sale price was.

[00:14:56] Speaker 02:
It ranges from $17.5 billion to about $23 billion, depending on what assumptions you use.

[00:15:06] Speaker 02:
But what the government has in its pocket right now are the profits from what it illegally exacted.

[00:15:16] Speaker 02:
That's in addition to the interest that they got.

[00:15:19] Speaker 04:
But what the government exacted in terms of what they ultimately years down the road sold and the value of that stock, that wasn't owned by the shareholders then, right?

[00:15:30] Speaker 02:
No, because it had been exacted by the government.

[00:15:33] Speaker 02:
What the district court, trial court, found was that there was no authorization to take equity and voting control.

[00:15:46] Speaker 02:
So when the government took equity in voting control, that was without congressional authorization.

[00:15:51] Speaker 02:
That was unlawful.

[00:15:53] Speaker 02:
And what the court held is that common sense would say, the government's got to give that back.

[00:16:01] Speaker 02:
And if it's already sold it, they've got to give back the profits.

[00:16:04] Speaker 03:
That brings me back to my continuing problem here.

[00:16:08] Speaker 03:
You keep saying that the government took control, that they took the 79% of the preferred voting stock.

[00:16:16] Speaker 03:
But actually, it was AIG, the board of directors, who voted to give the government this in order to survive.

[00:16:23] Speaker 02:
I think the court is exactly right about that in one respect.

[00:16:31] Speaker 02:
I think it's important, though, for the court to understand that in illegal exaction cases, time after time after time, the plaintiff has agreed to do what the government has asked.

[00:16:44] Speaker 02:
In the Kuntz case, the Supreme Court

[00:16:46] Speaker 02:
And that's an unconstitutional condition case.

[00:16:50] Speaker 02:
And the court below held that unconstitutional condition law only applied to land use.

[00:16:55] Speaker 02:
We think that that's wrong.

[00:16:56] Speaker 02:
We think the Koontz case demonstrates that's wrong.

[00:17:00] Speaker 02:
And we've appealed on that basis.

[00:17:02] Speaker 02:
But even if you assume that unconstitutional condition cases are not relevant in terms of the precise holding, the principle of Koontz

[00:17:12] Speaker 02:
is applicable here.

[00:17:14] Speaker 03:
It seems to me that the exaction, and I think this is what I'm about to say goes in your favor.

[00:17:21] Speaker 03:
I think that the exaction was not perfected until the board decided that they would not sue the government.

[00:17:29] Speaker 03:
And that left the stockholders with no remedy.

[00:17:33] Speaker 03:
I think that's the point of the exaction.

[00:17:36] Speaker 02:
I think that's the ultimate point of exaction, Your Honor.

[00:17:39] Speaker 02:
I would agree with that.

[00:17:41] Speaker 02:
Because up until then, the company could always try to get it back.

[00:17:46] Speaker 02:
On the other hand, the government took the position that even the company couldn't get it back at that point.

[00:17:53] Speaker 02:
So you'd have to evaluate that aspect of it in terms of making that determination.

[00:18:00] Speaker 03:
So let's assume there's an exaction and the government took the property.

[00:18:06] Speaker 03:
at the point of valuation of what they took, don't we measure that at the point that the exaction took place?

[00:18:14] Speaker 02:
Yes, I think you do, Your Honor.

[00:18:17] Speaker 02:
And there you do have expert testimony from both our experts and their experts.

[00:18:24] Speaker 02:
And both testified that the value of what the government got was about the same, in the range of $25 billion.

[00:18:34] Speaker 02:
Now, the difference

[00:18:35] Speaker 02:
OK, is the government's argument is that you've got to offset the value of the loan against the value of what was illegal exacting.

[00:18:48] Speaker 02:
We think that is inconsistent with all illegal exacting cases.

[00:18:53] Speaker 02:
There's not a single illegal exacting case has ever held that.

[00:18:57] Speaker 02:
Where do they say that?

[00:18:58] Speaker 02:
What?

[00:18:59] Speaker 02:
Where do they say that?

[00:19:01] Speaker 02:
They say that repeatedly in their brief.

[00:19:03] Speaker 02:
And indeed, that's what the...

[00:19:06] Speaker 02:
That's what they convinced the trial court of.

[00:19:10] Speaker 02:
I think it's 158 and 159 of the record is where the trial court's opinion discusses the economic analysis doctrine and holds it under A and D. It has a regulatory taking case, as you point out in our brief, that we think is not applicable.

[00:19:34] Speaker 02:
But the trial court believed that it was compelled under A&D to violate what the court says is common sense and hold that because the value of the loan, the value of the authorized loan, was greater than the value of what was exacted, there's no remedy.

[00:19:54] Speaker 02:
There's never been an illegal exaction case that said that.

[00:19:58] Speaker 02:
And we think that principle is directly contrary

[00:20:02] Speaker 03:
to the Supreme Court's 2015 decision in Coons.

[00:20:05] Speaker 03:
Doesn't your reliance on the Fifth Amendment, though, kind of butt up against that argument?

[00:20:11] Speaker 03:
I'm not sure I understand that, Your Honor.

[00:20:13] Speaker 03:
Well, if you're relying on the Fifth Amendment, then don't we restore back, we force the government to get back exactly what it took?

[00:20:21] Speaker 03:
Yes, Your Honor.

[00:20:21] Speaker 03:
And at that point, the stock was almost worth nothing.

[00:20:26] Speaker 02:
No, no.

[00:20:26] Speaker 02:
At that point, even if it's only worth $2 a share, that's several billion dollars because of the number of shares that were taken.

[00:20:40] Speaker 02:
What if it's essentially worthless?

[00:20:42] Speaker 02:
It wasn't worthless first.

[00:20:48] Speaker 02:
Let's just call it a hypothetical.

[00:20:50] Speaker 02:
OK, hypothetical.

[00:20:51] Speaker 02:
Okay, and hypothetically, if it was worthless without, if it was worthless with the loan, then there would be no value.

[00:21:03] Speaker 02:
You've got two questions.

[00:21:04] Speaker 02:
One, was it worthless without a loan?

[00:21:08] Speaker 02:
And two, what was its value with the loan?

[00:21:12] Speaker 01:
And sort of three is, what was its value when the initial loans aren't enough?

[00:21:19] Speaker 02:
Well, but that's what both experts testified about, what it was valued at the time of the initial loan.

[00:21:31] Speaker 02:
For example, because of the number of shares involved as the court found.

[00:21:36] Speaker 01:
I think you see what I'm asking you.

[00:21:39] Speaker 01:
That is, rather than valuing at the time of the initial loan, look forward and say, uh-oh,

[00:21:46] Speaker 01:
That initial loan would have left it worthless anyway.

[00:21:53] Speaker 02:
But that's not what their expert testified, our expert testified, not what the government estimated at the time in contemporaneous documents, not what AIG estimated at the time in contemporaneous documents, or what the trial court found.

[00:22:09] Speaker 02:
All of those put a value.

[00:22:13] Speaker 02:
Now, if you looked ahead,

[00:22:15] Speaker 02:
With everything else that happened, there was a time when the value was much higher.

[00:22:20] Speaker 01:
But looking back over the course of it seems like minutes, those numbers are going from 8 to 17 to 43 billion.

[00:22:34] Speaker 01:
And at a point, they settle on that initial loan number.

[00:22:41] Speaker 01:
But it's not enough.

[00:22:45] Speaker 01:
Well, Your Honor, if the government had said, OK, we quit following the initial loan, ARG would have gone on.

[00:22:54] Speaker 02:
Your Honor, there's no finding of that.

[00:22:57] Speaker 02:
And I don't believe that that is accurate as a matter of fact.

[00:23:01] Speaker 02:
There was a desire to restructure.

[00:23:03] Speaker 02:
And everybody said that restructuring was a good idea.

[00:23:05] Speaker 02:
But the government talks about $185 billion.

[00:23:12] Speaker 02:
at any point in time, $185 billion loaned.

[00:23:18] Speaker 02:
What happened was that the form of the loan changed.

[00:23:22] Speaker 02:
And when TARP came in, they took some TARP money and they actually reduced the amount of the 13-3 loan.

[00:23:29] Speaker 02:
So I do not think it is accurate to say that if they'd simply made the original $85 billion loan.

[00:23:35] Speaker 02:
In fact, I'm not even sure that there was any time when it exceeded $85 billion.

[00:23:43] Speaker 02:
If there was, it was for a very, very brief period of time.

[00:23:47] Speaker 02:
So you can't look at this number that was the possible aggregation of all forms of loans that were out there.

[00:23:57] Speaker 02:
You've got to look at what was actually loaned.

[00:23:59] Speaker 02:
And there's nothing in the evidence, no finding, that suggests that the company would not have had value with just the first loan.

[00:24:08] Speaker 02:
In fact, both experts testify.

[00:24:11] Speaker 02:
I don't think the value here is really subject to dispute.

[00:24:16] Speaker 02:
There's a dispute because everybody's testified that this had value to the government.

[00:24:23] Speaker 02:
The issue is whether you can offset because the value of the loan.

[00:24:29] Speaker 02:
And we agree that that loan was very valuable to AIG.

[00:24:35] Speaker 01:
It seems the value to the government really was to prevent all the

[00:24:41] Speaker 01:
the policyholders who had effectively assured against their financial risky conduct from going under all across the mark?

[00:24:57] Speaker 02:
There was a great deal of that, Your Honor.

[00:25:00] Speaker 02:
And indeed, one of the things that the trial court finds is that what happened was when the government took control of AIG,

[00:25:09] Speaker 02:
They used AIG funds to pay people off 100 cents on the dollar, give releases, because that supported the Goldman Sachs's and the Morgan Stanley's of the world.

[00:25:21] Speaker 02:
When you say they, you mean AIG?

[00:25:23] Speaker 02:
Well, I mean the government used AIG's funds to do that.

[00:25:29] Speaker 02:
The government used its control over AIG to ensure that AIG paid these people 100 cents on the dollar.

[00:25:39] Speaker 02:
in order to bulk them up.

[00:25:42] Speaker 01:
Where in the record is a directive from the government to AIG to make those plans?

[00:25:48] Speaker 02:
Well, you have to look at three things.

[00:25:54] Speaker 02:
First, the government took over negotiations with Morgan Stanley and Goldman Sachs.

[00:26:02] Speaker 02:
There is dispute in the record as to why it did it, but there is no dispute in the record that they took over those negotiations.

[00:26:08] Speaker 02:
and that they gave them $0.00 on the dollar.

[00:26:11] Speaker 02:
Now they say, well, we had to give them $0.00 on the dollar, because that's what they were owed.

[00:26:17] Speaker 02:
That's contrary to what every other negotiation going on at that point in time, where everybody else was taking haircuts.

[00:26:25] Speaker 02:
But they say we had to give them $0.00 on the dollar.

[00:26:27] Speaker 02:
But they didn't, in addition to have to do that, have to give them releases.

[00:26:32] Speaker 02:
So the government did that.

[00:26:34] Speaker 02:
And there's no question that this was done when the government was controlling AIG.

[00:26:38] Speaker 02:
The government had the ability at any point in time to remove the board while it was doing this.

[00:26:46] Speaker 02:
There can't be any doubt that the government controlled AIG at that time.

[00:26:49] Speaker 03:
No, you say there can't be any doubt that AIG controlled or that the government controlled AIG at that point.

[00:26:58] Speaker 03:
I don't see anything in the record, and I think I said this before, I don't see anything in the record that shows that the government usurped or exercised the type of duties and functions that a board normally does.

[00:27:16] Speaker 03:
And in fact, you can have a minority shareholder that has control over a corporation, can't you?

[00:27:24] Speaker 02:
In some circumstances, I think you could.

[00:27:26] Speaker 03:
So don't you have to have a showing that not that you have control, that you're a majority shareholder, and therefore you have the capacity to control.

[00:27:36] Speaker 03:
You have to show that you actually exercise that control.

[00:27:39] Speaker 03:
And where did that happen in this situation?

[00:27:42] Speaker 02:
Your Honor, we think it happened in a whole variety of situations, including when they unilaterally replaced the CEO with somebody that they picked and didn't even have the board

[00:27:55] Speaker 02:
know about it until after he'd been offered the job.

[00:27:59] Speaker 02:
There are a whole series of things that happened there.

[00:28:02] Speaker 02:
But I would just ask the court to consider two things, OK?

[00:28:06] Speaker 02:
First, the court made a finding, factual finding below on this.

[00:28:10] Speaker 02:
And the court has lots of evidence to support it.

[00:28:15] Speaker 02:
Now, could you argue that they didn't really exercise control?

[00:28:20] Speaker 02:
I don't think that would be a very persuasive argument.

[00:28:22] Speaker 02:
But whether or not you could argue that,

[00:28:25] Speaker 02:
The trial court made a factual finding on this, and it's well, well supported.

[00:28:30] Speaker 02:
We think by overwhelming evidence in the record that they had the ability to replace the board at any time.

[00:28:38] Speaker 02:
They talked to the board members about being replaced.

[00:28:41] Speaker 02:
They asked them whether they were willing to resign.

[00:28:44] Speaker 02:
They put in their own monitoring team.

[00:28:48] Speaker 02:
The trial court quotes the reports

[00:28:52] Speaker 02:
The first day, we're now here to run the company.

[00:28:56] Speaker 02:
Mr. Geithner says to Sarah Dahlgren, who is the head of that team, we're going to loan money to AIG, and you're going to run it.

[00:29:06] Speaker 02:
There is a plethora of evidence in the record about control.

[00:29:13] Speaker 02:
I do want to keep coming back to the fact, though, that control is not essential.

[00:29:19] Speaker 02:
to our standing here.

[00:29:25] Speaker 02:
First, for the point that the Chief Judge raised, which is the theory of the trial court, was that there is a Fifth Amendment duty, regardless of whether there is control.

[00:29:37] Speaker 02:
And second, because under federal law, if people are targeted, even if they're not targeted, if they have an effect under Allegheny,

[00:29:48] Speaker 02:
there is standing in federal court to try to address that issue.

[00:29:54] Speaker 04:
We are way above where we started.

[00:29:56] Speaker 04:
And we will restore your four minutes of rebuttal, which means that in total we've gone over 18 minutes.

[00:30:03] Speaker 04:
So why don't we add something along those lines?

[00:30:05] Speaker 04:
Please, you don't feel compelled to use it, just to even things out.

[00:30:09] Speaker 04:
We'll add, I hate to say this, 18 minutes to your time.

[00:30:18] Speaker 00:
I will be as brief as the court wishes.

[00:30:21] Speaker 00:
Mark Stern for the United States.

[00:30:26] Speaker 00:
The focus on what the actual claim in this case is and what happens in the relevant period.

[00:30:35] Speaker 00:
The claim concerns the loan that was made.

[00:30:40] Speaker 01:
Let me cut to one of my core questions, okay?

[00:30:44] Speaker 01:
And I started with Mr. Boyes on this,

[00:30:46] Speaker 01:
If we find that the government's actions were authorized by 13-3, is the takings claim properly in front of us?

[00:30:53] Speaker 00:
The takings claim?

[00:30:55] Speaker 00:
The trial court didn't reach the takings claim.

[00:30:59] Speaker 00:
The trial court did find that nothing was taken.

[00:31:05] Speaker 00:
And at this point, I understand Starr's argument to be that

[00:31:12] Speaker 00:
Yeah, A&D auto in a blood-force scenario would compel the trial court's conclusion if this were a taking claim, but this isn't a taking claim, so A&D doesn't apply.

[00:31:24] Speaker 00:
So I think that the trial court's reasoning would dictate that the takings claim is gone, but

[00:31:33] Speaker 00:
To be fair, the trial court didn't reach it.

[00:31:37] Speaker 04:
Can we start at the standing question?

[00:31:40] Speaker 04:
Absolutely not.

[00:31:40] Speaker 04:
And could you start by responding to your friend's citation to Allegheny and the sort of alternative argument with respect to standing under federal law?

[00:31:51] Speaker 00:
I mean, there's no separate doctrine.

[00:31:55] Speaker 00:
Allegheny has not spawned a separate doctrine.

[00:31:58] Speaker 00:
The suggestion would be, I mean, all Alleghenies, and we discussed this in our reply brief, when you look to see what was going on in Allegheny, it's the kind of deal in which majority shareholders affecting control managed to get a better deal

[00:32:17] Speaker 00:
for themselves and for other shareholders.

[00:32:20] Speaker 00:
And the Supreme Court says, look, that's an injury to those shareholders in particular.

[00:32:25] Speaker 00:
And this court and other courts have never suggested that

[00:32:31] Speaker 00:
that Allegheny established a different rule in cases like in this court's decision in Robo-Wash.

[00:32:38] Speaker 00:
And of course, like the Delaware courts, in a case like JP Morgan, which sort of crystallizes a lot of the principles

[00:32:48] Speaker 00:
that have been formed, you know, this court and other federal courts recently.

[00:32:53] Speaker 00:
I mean, that was a case in which, as there was a merger, plaintiffs are saying that too much stock was issued in the course of the merger, that their interests were diluted.

[00:33:05] Speaker 00:
Delaware court says that's a classic derivative claim.

[00:33:09] Speaker 00:
You don't get to pursue that.

[00:33:12] Speaker 00:
And this case is also a classic derivative claim.

[00:33:16] Speaker 00:
I mean, these claims

[00:33:18] Speaker 00:
again, would belong, if they were valid claims, they would belong to AIG.

[00:33:24] Speaker 03:
So what happens in this situation?

[00:33:27] Speaker 03:
And I agree, the claims belong to AIG.

[00:33:31] Speaker 03:
But the board said, we're not going to sue the government.

[00:33:35] Speaker 03:
We're not going to do anything about this.

[00:33:38] Speaker 03:
What does that mean to stockholders in that situation?

[00:33:40] Speaker 00:
It leaves them in this lawsuit asking the trial court to overturn

[00:33:47] Speaker 00:
that decision, because that's what you do if you go to the board.

[00:33:52] Speaker 00:
The board says, no, we're not doing it.

[00:33:56] Speaker 00:
And the trial court in this case, because remember, originally AIG is a defendant in this case also.

[00:34:03] Speaker 00:
And it was a defendant because the same claims that are being asserted against the United States were also being asserted against AIG.

[00:34:12] Speaker 00:
And the trial court says, no, this was an exercise of business judgment, which under governing law, I'm not overruling.

[00:34:18] Speaker 03:
But in a situation involving the nationalization of a bank, it just strikes me as somewhat contrary to the Fifth Amendment to permit that to happen.

[00:34:29] Speaker 03:
Well, I can see having perhaps a scenario where you have an administration that's bent on nationalization or that sees that as a game.

[00:34:43] Speaker 03:
And we're in a situation now where

[00:34:47] Speaker 03:
Under the law, as you express it, the shareholder is left without a recourse.

[00:34:54] Speaker 00:
I mean, Your Honor, there's no argument, as far as I understand it, that says, I don't even understand plaintiffs to be arguing.

[00:35:02] Speaker 00:
that these principles don't apply.

[00:35:04] Speaker 00:
The argument that they've been making is that they fit within an exception, and they've sort of said, well, there's a fiduciary duty.

[00:35:14] Speaker 00:
And that's their argument.

[00:35:15] Speaker 00:
This is not a nationalization of anybody.

[00:35:19] Speaker 00:
I mean, that's a total sort of, I think, misconception that gets raised once or twice in plaintiff's brief.

[00:35:27] Speaker 00:
Remember, what happens on the Federal Reserve and the Federal Reserve Bank of New York had no interest.

[00:35:35] Speaker 03:
I say nationalization because the government ended up owning 80% of a bank.

[00:35:40] Speaker 00:
That's right, it did.

[00:35:41] Speaker 00:
But here's what happens.

[00:35:44] Speaker 00:
The last thing that the Federal Reserve and the Federal Reserve Bank of New York wanted to do, and this is absolutely clear from the record,

[00:35:52] Speaker 00:
The last thing they wanted to do was to get involved in AIG.

[00:35:57] Speaker 00:
AIG, for the course, like in the few days before September 16th, which is when the AIG board votes to accept the terms of the loan, what's happening is that AIG's sort of liquidity shortfall estimates are going from something like $14 billion to $90 billion.

[00:36:22] Speaker 00:
on the 15th, Lehman Brothers goes into bankruptcy.

[00:36:27] Speaker 00:
The markets are sort of absolutely trembling at this point.

[00:36:32] Speaker 00:
And what the Fed and the Federal Reserve Bank of New York go is we want to have a private sector solution to this.

[00:36:43] Speaker 00:
The private sector bankruptcy.

[00:36:45] Speaker 01:
Counsel, please stop nodding.

[00:36:46] Speaker 01:
You're distracting me.

[00:36:47] Speaker 00:
I'm sorry, Your Honor.

[00:36:48] Speaker 00:
Not you.

[00:36:49] Speaker 00:
Oh, stop nodding.

[00:36:53] Speaker 01:
You're right after private sector solution.

[00:36:59] Speaker 00:
I'm sorry your honor.

[00:37:01] Speaker 00:
The private sector solution, so the bankers work through the night of the 15th.

[00:37:07] Speaker 00:
And what they do is they come up with a term sheet that includes 79.9% of an equity interest, sort of plus, you know, sort of all of the collateral, sort of pledged loan.

[00:37:21] Speaker 00:
Nobody, but nobody wants to touch this because, you know, and the record, you know, was just replete with, you know, talk about this.

[00:37:32] Speaker 00:
Nobody knows just how bad AIG is.

[00:37:36] Speaker 00:
They know it's terrible.

[00:37:37] Speaker 00:
But nobody is willing, even with those terms, even with the 79.9%, nobody... Okay, let me... We know the history, trust me.

[00:37:48] Speaker 04:
Can I take you to the question of the legal exaction and the statutory provisions?

[00:37:54] Speaker 04:
Of course, your honor.

[00:37:55] Speaker 04:
I mean, the provision you're relying on 13.3 is dealing exclusively with interest, right?

[00:38:00] Speaker 04:
And now you say, well, the other side concedes that could include fees and expenses, so that gives you the leeway to put all this equity in there.

[00:38:07] Speaker 04:
But that's what the language says, though.

[00:38:09] Speaker 04:
The language is dealing with interest payments, right?

[00:38:12] Speaker 00:
No, Your Honor, we don't agree with that.

[00:38:15] Speaker 00:
It's also not what the Federal Reserve understood.

[00:38:19] Speaker 00:
to be the case, what this says is that all, I mean, you have a reference to interest payments.

[00:38:28] Speaker 00:
And then the same section of 1343 says that all the loans shall be subject to limitations, restrictions, and regulations as the board shall require.

[00:38:40] Speaker 00:
And I take that in combination with the incidental powers provision,

[00:38:45] Speaker 00:
in 12 USC 341, which is modeled on the National Bank Act provision.

[00:38:51] Speaker 00:
And what this says is you have the powers necessary to engage in the business of banking.

[00:38:58] Speaker 00:
So what happens here is that the Fed is doing exactly what the private sector people thought was the business of banking.

[00:39:08] Speaker 00:
And there's lots of testimony in the record about how taking an equity stake is a not uncommon thing to do.

[00:39:15] Speaker 04:
Yeah, but it's a lot to ask, is it not, to find in the sort of additional power thing, as Judge Raina said, a pretty extreme and important

[00:39:27] Speaker 04:
and consequential ability here, right?

[00:39:31] Speaker 04:
I mean, at least in 1343, it says an unusual and exigent circumstances.

[00:39:36] Speaker 00:
But when you go back and you want to rely on the other provision too, it seems like... Well, I think that the two of them make sense together, Your Honor, because this only comes up in an unusual and exigent circumstance.

[00:39:50] Speaker 00:
And what the thrust of this provision is, is to put restrictions on the times

[00:39:57] Speaker 00:
when these kinds of loans can be authorized.

[00:40:00] Speaker 00:
And there's lots of testimony about how the Fed and the Federal Reserve Bank of New York have to go through the analysis of going, is this really a loan of last resort?

[00:40:14] Speaker 00:
Does AIG fit within this?

[00:40:17] Speaker 04:
Is that decision reviewable by a court?

[00:40:20] Speaker 04:
I mean, does the court then apply the statute and review their decision that this was unusual and exigent?

[00:40:25] Speaker 04:
And if the reviewing court concludes that it wasn't, then they don't have the authority?

[00:40:30] Speaker 00:
Well, if one imagines that there was a PRO filed to say, you know, this deal can't go forward because the Federal Reserve has no authority,

[00:40:46] Speaker 00:
then a court might conclude that this is committed agency discretion by law, but assuming that that's not true, then the court would presumably say, yes, that's not lawful and issue a PRO.

[00:41:02] Speaker 01:
Assuming it's not that it is discretionary, is it not unreasonable to interpret restriction to include the restrictions that were placed on the loan

[00:41:16] Speaker 01:
relating to the shares?

[00:41:19] Speaker 00:
I think that it was reasonable for the Fed.

[00:41:25] Speaker 01:
I gave you a double negative, not unreasonable.

[00:41:28] Speaker 00:
Yes, we think it was not unreasonable.

[00:41:32] Speaker 00:
I mean, again, this is... Look who's making these decisions.

[00:41:36] Speaker 03:
When the government moved under these legal provisions that we're talking about, it did so in pursuit, as you point out very well,

[00:41:45] Speaker 03:
Let's call it a legitimate objective, the legitimate legislative objective, and to create stability in the marketplace, all of that.

[00:41:57] Speaker 03:
That's the benefit that accrues to the government when it exercises these provisions.

[00:42:02] Speaker 03:
Now, we also have the Fifth Amendment at play.

[00:42:06] Speaker 03:
And the government's already benefited here.

[00:42:08] Speaker 03:
It's realized its goal.

[00:42:12] Speaker 03:
the stability in the market.

[00:42:14] Speaker 03:
Fifth amendment, does the exercise of this provisions also lead to the $18 billion

[00:42:22] Speaker 03:
you know, it's calling the brief windfall or the $18 billion that they ended up with in this case.

[00:42:29] Speaker 03:
Your Honor, there is no windfall in this case.

[00:42:32] Speaker 03:
The windfall... Well, I said windfall.

[00:42:34] Speaker 03:
I'm talking about the $18 billion.

[00:42:35] Speaker 03:
Call it what you want.

[00:42:36] Speaker 03:
The government ended up with $18 billion profit.

[00:42:40] Speaker 00:
Well, what the government ended up with is the equivalent of a 5.7% annual average return on its investment.

[00:42:50] Speaker 03:
But the purpose of this statute is not to give the government a return.

[00:42:54] Speaker 03:
Well, it's certainly not to put the taxpayer at risk for $182 billion.

[00:43:00] Speaker 03:
I know, and that didn't happen.

[00:43:02] Speaker 03:
The government realized its legitimate goal.

[00:43:05] Speaker 00:
No, no, no, the government doesn't.

[00:43:07] Speaker 00:
This is not a bailout.

[00:43:09] Speaker 00:
provision.

[00:43:10] Speaker 00:
I mean, that's one, I mean, this is like absolutely clear from like nobody's really disputing this.

[00:43:17] Speaker 00:
I mean, this is not a provision that says in order to bail out the economy, the Federal Reserve, regardless of the extent to which it thinks taxpayer money is being put at risk,

[00:43:27] Speaker 00:
can just go ahead in order to stabilize the economy.

[00:43:31] Speaker 00:
Nobody thought that that was something that they could do.

[00:43:35] Speaker 00:
On the contrary, what's clear is from Secretary Geithner and everyone else that's involved is they've got them like they're going, have we sort of done all we could to secure this loan by including the equity participation and all the other things?

[00:43:53] Speaker 00:
And everybody also recognized

[00:43:55] Speaker 00:
and the Southern District of New York case.

[00:43:58] Speaker 00:
And so it recognizes, too, that all of these terms compensate the government for putting in billions of dollars that they might never see again.

[00:44:08] Speaker 01:
I want you to talk a little bit about interest rates.

[00:44:12] Speaker 01:
Because one of the arguments that the other side makes is that the rates imposed were exorbitant.

[00:44:21] Speaker 01:
And I'm particularly interested in the 13-3 phrase, that the rates are to be such that they accommodate commerce and business.

[00:44:34] Speaker 01:
And my take on that, I'll tell you right now, is that it's not necessarily to accommodate AIG.

[00:44:44] Speaker 01:
the overall marketplace as a whole.

[00:44:47] Speaker 00:
That's exactly right.

[00:44:49] Speaker 00:
As it turned out, this saved the bacon of AIG shareholders, but that was an incidental

[00:44:57] Speaker 00:
sort of, like, result.

[00:44:58] Speaker 00:
That's not why this loan was made.

[00:45:01] Speaker 00:
But I'm talking about the rates.

[00:45:02] Speaker 00:
Oh, the rates?

[00:45:04] Speaker 00:
I mean, that's not part of plaintiff's claim.

[00:45:07] Speaker 00:
I mean, the plaintiff's claim is strictly that you couldn't do equity.

[00:45:12] Speaker 00:
And what this, like, the input.

[00:45:15] Speaker 01:
I know, but the trial court made a great deal of that, saying that it was punitive.

[00:45:24] Speaker 01:
Follow me, please.

[00:45:27] Speaker 01:
And my interest in that is, my read of it is, that what the government was doing was establishing those rates again to create that moral hazard.

[00:45:37] Speaker 00:
Your Honor, the testimony at trial, which I'm of course having all these notes, I can't find the precise point, but I know that Jimmy Lee and others testify that what you would have had if without the equity term is a far higher interest rate because an equity just substitutes for interest.

[00:45:57] Speaker 00:
So you would have had an enormously high rate.

[00:46:01] Speaker 00:
And remember, the government not only is the original loan crucial, as the trial court finds, if the government hadn't then kept restructuring and pumping in more money,

[00:46:11] Speaker 00:
like AIG would still have gone down and the government kept lowering the interest rate and putting more money in as time went on.

[00:46:22] Speaker 00:
Again, the interest rate is not part of Star's claim, but as far as it goes,

[00:46:28] Speaker 00:
It doesn't even begin to capture all the different things that the government did to preserve AIG and preserve the value of star shares, which is the trial court, even though the trial court may sort of said things about punitive, it also said, look, if

[00:46:46] Speaker 00:
If the government had wanted to punish STAR, well AIG, not STAR, because I think your honor is absolutely right, there was no singling out of anybody.

[00:46:56] Speaker 00:
If the government had wanted to punish AIG, all it needed to do was to do nothing.

[00:47:02] Speaker 00:
And then that would have been it.

[00:47:05] Speaker 00:
So the idea that there was some other punishment involved other than sort of like the decision to come in and save it,

[00:47:14] Speaker 00:
And again, the contrast that gets drawn between other loans, the other loans, as the record shows, you have loans being made on very short-term basis, sometimes overnight loans.

[00:47:27] Speaker 00:
They're being made to banks who are subject to the regulation of the Fed.

[00:47:33] Speaker 00:
They've got long-standing knowledge of the Fed, has long-standing knowledge of these institutions, and their collateral is liquid.

[00:47:43] Speaker 00:
They know what they've got.

[00:47:46] Speaker 00:
Here, AIGs, to the extent that there are assets, they were largely assets in the insurance subsidiaries.

[00:47:56] Speaker 00:
Nobody knew for sure what their value was.

[00:47:59] Speaker 00:
They were subject to seizure by state regulators, and it was assumed that probably if AIG went into bankruptcy, the value of those subsidiaries, whatever it was, would further decline.

[00:48:11] Speaker 00:
So the attempt to compare that to sort of these very short-term loans that are backed with good collateral, you know, they're a non-starter.

[00:48:23] Speaker 03:
Counselor, what do you think was the rationale behind the government's move to convert its 79% interest in AIG and convert that to a preferred stock?

[00:48:39] Speaker 00:
I mean, it was going to take some form.

[00:48:42] Speaker 00:
I mean, the equity was going to take a form.

[00:48:46] Speaker 03:
The term sheet that would have been already had a 79% equity stake.

[00:48:51] Speaker 00:
Well I mean the equity state had to take a form and the term sheet that was given to AIG that AIG voted on on the 16th referred to the 79.9 equity in a form to be determined and the credit agreement

[00:49:08] Speaker 00:
specified sort of a preferred convertible stock.

[00:49:12] Speaker 00:
The suggestion in the 16th, though, was that, oh, you're dealing with warrants, right?

[00:49:16] Speaker 00:
No, there was no suggestion in that term sheet.

[00:49:19] Speaker 01:
Was the term sheet lifted from the prior private negotiation?

[00:49:27] Speaker 00:
It was in part.

[00:49:29] Speaker 00:
It was so that there was always going to be a seven.

[00:49:31] Speaker 00:
And remember, it doesn't matter, for Starr's theory, whether this is warrants or anything else.

[00:49:36] Speaker 00:
Warrants are a form of equity.

[00:49:38] Speaker 00:
they just give you a right to, you know, I mean, they... Wait, I thought it made a lot of difference.

[00:49:44] Speaker 04:
If there were warrants, wouldn't the government have been on the hook for an additional $30 billion?

[00:49:48] Speaker 00:
No, I mean, because the government's more like the term sheet, the private sector term sheet called for penny warrants, which meant that you would essentially have a nominal strike price for purchasing, and that itself was a placeholder.

[00:50:04] Speaker 00:
So the ability to take equity

[00:50:06] Speaker 00:
sort of, like, is there throughout.

[00:50:08] Speaker 00:
But what's the case is that there is the term sheet that goes over to Starr's board of directors.

[00:50:16] Speaker 00:
And also the testimony is clear that Starr always expected that there would be an equity component to this deal, even before the federal government.

[00:50:26] Speaker 03:
The government took a change, converted the stock, or actually

[00:50:31] Speaker 03:
took the stock in the form of a preferred voting stock.

[00:50:35] Speaker 03:
Doesn't that have the effect of diminishing the voting power of the common stockholder?

[00:50:39] Speaker 00:
Well, this isn't the case about voting rights at this stage.

[00:50:45] Speaker 00:
I mean, yeah, any time a corporation can issue new stock, you know, that's one of the things that it does to raise money.

[00:50:55] Speaker 00:
And when a corporation issues stock, if it's doing it in a good deal,

[00:50:59] Speaker 00:
then the value of everybody shares goes up.

[00:51:04] Speaker 00:
Does it mean so that you have a smaller percentage piece of a larger pie?

[00:51:10] Speaker 00:
Does it mean you have somewhat less voting rights?

[00:51:12] Speaker 00:
Yes.

[00:51:13] Speaker 00:
Does it mean you have more money?

[00:51:14] Speaker 00:
Absolutely.

[00:51:16] Speaker 00:
And that's all that happens here.

[00:51:18] Speaker 00:
You have the government pumping in a lot of money.

[00:51:22] Speaker 00:
The stars percentage of

[00:51:26] Speaker 00:
the company goes down, the value of its shares just starts going up instantly.

[00:51:33] Speaker 00:
And so what you have is just a situation where you otherwise would have been in bankruptcy, and as the crowd court says, your shares would have been worth absolutely nothing.

[00:51:43] Speaker 00:
Instead, you have the government come in and

[00:51:47] Speaker 00:
and do this, and saves AIG.

[00:51:53] Speaker 04:
Well, you seem to be saying two different things.

[00:51:55] Speaker 04:
I mean, it seems to be, I mean, the theory the Court of Claims said was, well, if you look at the big picture, high above, they would have had bankruptcy.

[00:52:03] Speaker 04:
If not, there can't be any damages at stake.

[00:52:06] Speaker 04:
It's quite another thing to talk about whether or not, it seems what you're saying is, though, if they're confined to the value, the lost value, the diminution of value,

[00:52:16] Speaker 04:
based on voting rights, diminution of voting rights and equity, you're saying that just isn't worth anything.

[00:52:23] Speaker 04:
Why?

[00:52:23] Speaker 00:
Because it's immeasurable.

[00:52:25] Speaker 04:
I mean, there was expert testimony, right?

[00:52:27] Speaker 00:
I mean, that's never been the theory of the case.

[00:52:33] Speaker 00:
Like, what Starr wants, it's not, its claim isn't that if we had had more voting rights after September 22nd, that their claim would be any different.

[00:52:45] Speaker 00:
I mean, their claim is that this is the period, I mean, this is a closed class, and the period that they're focusing on... Well, they're talking about the effect that it had on their shares by increasing the number by issuing all of these... Right, and the effect, I mean, you know, they like to say that this is the equivalent of taking four out of every five of my shares.

[00:53:05] Speaker 00:
Their shares, they kept them in a safe deposit box.

[00:53:09] Speaker 00:
Their shares were there beforehand, they're there during, they're there after.

[00:53:14] Speaker 00:
The only difference, and so the Star can't argue that its shares were exacted.

[00:53:21] Speaker 00:
Its claim is the value of their shares is exacted.

[00:53:24] Speaker 04:
And that value, the loss part of that is the loss of voting rights.

[00:53:31] Speaker 00:
Again, that's not been, I mean, there's not been any attempt to fit that within the illegal exemption theory that is part of this case.

[00:53:41] Speaker 00:
Theory has always been that you should, like, pay money for, sort of, based on, sort of, you know, pick a day, you know, like, you know, could be 15 billion, could be 24 billion.

[00:53:53] Speaker 00:
But that's the theory, and it's totally unconnected to sort of what voting rights after September 22nd were.

[00:54:01] Speaker 01:
Is there any reason why when we do our standing analysis that it should be any different to the reverse stock split class?

[00:54:10] Speaker 00:
Well, the reverse stocks political code, that really is about voting rights, unlike this, the primary claim.

[00:54:18] Speaker 00:
So we haven't contested that that is a direct claim.

[00:54:22] Speaker 00:
It's just that it's, trial court found it's meritless.

[00:54:28] Speaker 00:
But we haven't contested that that's a direct claim, because there the argument is that certain

[00:54:35] Speaker 00:
Like, minority shareholders really were sort of, like, bad things were happening to them.

[00:54:40] Speaker 00:
Again, there's no merit to it, but that's a direct claim.

[00:54:45] Speaker 00:
A claim of the kind that forms the central part of their case, that's quintessentially derivative.

[00:54:52] Speaker 00:
And that was AIG's claim to bring.

[00:54:57] Speaker 00:
Star went to AIG, said, bring it.

[00:55:00] Speaker 00:
AIG exercised its business judgment.

[00:55:02] Speaker 00:
Star goes to the Court of Federal Claims here, says, overturn it.

[00:55:07] Speaker 00:
The Court of Federal Claims says, no, they exercised their business judgment, and I'm not overturning it.

[00:55:13] Speaker 04:
And, you know, the... I thought the standing issue and the difference between the reverse stop split and the equity claims had to do with the timing.

[00:55:22] Speaker 04:
because the equity claims came at a time before the government actually held the equity.

[00:55:26] Speaker 04:
Yes, that's right, Your Honor.

[00:55:27] Speaker 04:
And during the reverse stock split, they were some sort of majority or controlling entity.

[00:55:33] Speaker 04:
Am I wrong about that?

[00:55:34] Speaker 00:
Tell me if I'm wrong.

[00:55:35] Speaker 00:
No, no, you're right, Your Honor.

[00:55:36] Speaker 00:
I guess I wasn't.

[00:55:39] Speaker 00:
That's true.

[00:55:40] Speaker 00:
And the claim is that the majority shares were being used in a way to deprive

[00:55:48] Speaker 00:
Which would come under the exceptions under Rosette.

[00:55:51] Speaker 00:
That's right.

[00:55:52] Speaker 00:
And that's why we haven't contested that.

[00:55:55] Speaker 00:
We just don't think there's any merit to it.

[00:55:57] Speaker 04:
We're going to stop you because you've been very generous for a few minutes for your rebuttal on your cross appeal.

[00:56:09] Speaker 02:
I'll try to go quickly, Your Honor.

[00:56:11] Speaker 02:
First, with respect to Allegheny.

[00:56:14] Speaker 02:
Allegheny was not a suit against private

[00:56:18] Speaker 02:
party or the board.

[00:56:19] Speaker 02:
Allegheny was a suit against the ICC.

[00:56:22] Speaker 02:
But they were suing, and the court held in Allegheny, that there was standing to sue the government because the government had facilitated dilution.

[00:56:33] Speaker 02:
And it was dilution that affected everybody equally.

[00:56:36] Speaker 02:
There wasn't any issue there of the government having control.

[00:56:39] Speaker 02:
There was private parties that had control.

[00:56:43] Speaker 02:
Second, the Takings case is not

[00:56:48] Speaker 02:
now before the court because the trial court didn't reach it.

[00:56:53] Speaker 02:
There are a number of issues that we'd have to, if we lost on illegal exaction, there are a number of issues that we would have to deal with on the takings claims.

[00:57:05] Speaker 02:
The takings claim is not solved by A and D, which is a regulatory case.

[00:57:11] Speaker 02:
In addition, if we were to lose on illegal exaction, we've got to address the unconstitutional conditions

[00:57:17] Speaker 02:
decision, which was unconstitutional conditions, a decision that we think the court made before Coons and is inconsistent.

[00:57:26] Speaker 02:
And then you have to particularize.

[00:57:28] Speaker 02:
What?

[00:57:28] Speaker 02:
And then you would have to particularize.

[00:57:31] Speaker 02:
Yes, but I think, Your Honor, for example, in Allegheny, the particularized was simply dilutioned.

[00:57:41] Speaker 02:
That is, I think the United States Supreme Court in Allegheny makes absolutely clear that dilution, even if it affects everybody, is a particularized claim.

[00:57:54] Speaker 02:
With respect to the suggestion that all they did was adopt a term sheet, that's not accurate.

[00:58:00] Speaker 02:
There's nothing in the... I don't think he said that.

[00:58:03] Speaker 02:
I think he said they started with the term sheet.

[00:58:05] Speaker 02:
Well, okay.

[00:58:07] Speaker 02:
In that case, that could be accurate.

[00:58:09] Speaker 02:
But there's a huge difference between the private term sheet and what ultimately turned out to be the case in terms of that was non-voting warrants.

[00:58:20] Speaker 02:
He said they wanted pennies.

[00:58:21] Speaker 02:
They couldn't get pennies without votes.

[00:58:24] Speaker 02:
The votes were critical here, absolutely critical.

[00:58:27] Speaker 02:
And one of the things that we've repeatedly said in our briefs and in our proposed findings to court and in our arguments to this court is that by changing it from warrants to voting preferred,

[00:58:40] Speaker 02:
And it's replete in the record, as a trial court found, replete in the record, that that was their intent.

[00:58:46] Speaker 02:
Their intent was to deprive the shareholders the right to vote.

[00:58:50] Speaker 02:
They were afraid the vote was going to come out the wrong way.

[00:58:52] Speaker 02:
And so they took the preferred stock rather than the warrants because they knew they couldn't get stock if all they had is warrants because the common shareholders would never have voted to give it to them.

[00:59:07] Speaker 02:
With respect to the Your Honor's question about whether the... You say that with such confidence.

[00:59:14] Speaker 01:
When the value went below a buck and the stock exchange was going to delist, Starr voted along with... What percentage did Starr own, by the way?

[00:59:27] Speaker 01:
Altogether, maybe 28%.

[00:59:30] Speaker 02:
Star voted along with everyone else.

[00:59:34] Speaker 02:
Yes, yes, because, Your Honor, what they did, and this is really important, they delayed the vote until the last minute so that they either took 20 to 1 or nothing.

[00:59:44] Speaker 02:
They could have avoided delisting by a 5 to 1 reverse stock split that would not have given them the ability to do the exchange they wanted to do.

[00:59:56] Speaker 02:
They could also have applied it to both

[00:59:59] Speaker 02:
issued and outstanding chairs.

[01:00:00] Speaker 02:
There's not a single explanation in the record as to why they applied it only to the outstanding chairs and not the issued chairs.

[01:00:10] Speaker 02:
So I think that really supports our argument very strongly.

[01:00:18] Speaker 02:
With respect to the issue on interest, the only thing that's specified in the statute is interest.

[01:00:24] Speaker 02:
To talk about this as being a restriction or a limitation, I think, is not

[01:00:28] Speaker 02:
following the plain language.

[01:00:30] Speaker 02:
And with respect, Your Honor, it makes no sense.

[01:00:33] Speaker 02:
And the interest rate, the statute says you've got to get, board of governors has got to determine it, not the bank.

[01:00:42] Speaker 02:
The board of governors has got to determine it.

[01:00:45] Speaker 02:
It says it has to be set with a view towards accommodating commerce and business.

[01:00:49] Speaker 02:
If you had total power to set any compensation you wanted,

[01:00:56] Speaker 02:
because of restrictions or limitations language or incidental language.

[01:00:59] Speaker 02:
You wouldn't need any of that.

[01:01:01] Speaker 02:
It would all be surplusage.

[01:01:03] Speaker 02:
And try to think of the hypothetical congressional intent that would say, we are going to make it really, we're going to put all sorts of restrictions on what kind of interest rates you can charge, the normal compensation for a loan.

[01:01:15] Speaker 02:
But we're going to give you absolute carte blanche for grabbing equity.

[01:01:19] Speaker 01:
That makes no sense.

[01:01:20] Speaker 01:
Well, it doesn't say the normal compensation for loans.

[01:01:23] Speaker 01:
It says accommodating.

[01:01:26] Speaker 01:
the generalized market.

[01:01:30] Speaker 01:
And in my view, accommodating the generalized market under these circumstances might be very high interest rates because of the moral hazard issue.

[01:01:38] Speaker 02:
It might be, Your Honor, but they admitted, and the court found, that there was moral hazard to lending to Morgan Stanley, moral hazard to lending Goldman Sachs, moral hazard to lending to all these other banks, and yet they lent to them at 2% or 3% interest and didn't take any equity at all.

[01:01:56] Speaker 02:
So I really respectfully suggest that this was not a moral hazard issue.

[01:02:02] Speaker 02:
There's no finding of that.

[01:02:04] Speaker 02:
There's no finding that says we're going to uniquely discriminate against the AIG shareholders because there's a peculiar moral hazard that relates to AIG that doesn't relate to these other groups.

[01:02:15] Speaker 01:
I mean, I don't think they were using it as

[01:02:17] Speaker 01:
Morality?

[01:02:18] Speaker 02:
No, I wasn't meaning morality.

[01:02:22] Speaker 02:
I meant moral hazard in the sense that I think the court was using it, which is in the sense you don't want to induce bad behavior.

[01:02:32] Speaker 04:
Final thought, because we're going to have to conclude.

[01:02:37] Speaker 02:
Can I say just one thing?

[01:02:39] Speaker 04:
Yeah, that's what I said.

[01:02:39] Speaker 04:
You get one final.

[01:02:40] Speaker 02:
Thank you.

[01:02:42] Speaker 02:
To talk about the taxpayer at risk,

[01:02:45] Speaker 02:
at page 199 of the record, the court's opinion, it quotes what they were saying at the time.

[01:02:52] Speaker 02:
The time they did the deal, we're going to earn tens of billions of dollars from the equity.

[01:02:58] Speaker 02:
They didn't think this was risky.

[01:02:59] Speaker 02:
The statute says it has to be secured.

[01:03:02] Speaker 02:
They told Congress there was not at all risk.

[01:03:04] Speaker 02:
This idea that this was a highly risky thing, they needed to do all this thing to compensate for risk is made up after the fact.

[01:03:13] Speaker 02:
And in any event,

[01:03:15] Speaker 02:
That's not the way the statute was written.

[01:03:18] Speaker 02:
That's not the way Congress wrote the statute.

[01:03:20] Speaker 02:
Thank you.

[01:03:26] Speaker 00:
Ronald, to be extremely brief, if the court has any questions about it, I would just point out that there are some grounds for reversal of the liability ruling that we didn't get into, such as the nature of the statute.

[01:03:42] Speaker 00:
It's not being enacted for the benefit of entities such as AIG.

[01:03:50] Speaker 00:
We would direct the court's attention, in particular, to the analysis of rough diamond.

[01:03:56] Speaker 00:
Thank you.

[01:03:56] Speaker 04:
We thank both sides.

[01:03:57] Speaker 04:
That concludes the cases submitted and that concludes our proceedings for this morning.

[01:04:03] Speaker 00:
All rise.