## Facts

- During the September 2008 financial crisis, American International Group, Inc. (AIG) faced severe liquidity pressure tied to securities-lending exposure and credit-default-swap obligations.
- After private rescue options failed, AIG sought federal assistance; the Federal Reserve Bank of New York (FRBNY) determined AIG’s collapse posed severe risks to the financial system.
- On September 16, 2008, FRBNY extended an $85 billion revolving credit facility under § 13(3) of the Federal Reserve Act on terms that included:
  - Interest of roughly 12%, characterized as punitive.
  - Issuance to a government-controlled trust of preferred voting shares representing 79.9% of AIG’s equity, effectively giving the government control.
- AIG’s board approved the package under the belief that rejecting it would lead to imminent bankruptcy.
- Subsequent restructuring transactions and a reverse stock split further affected the equity position of existing shareholders.
- The government later exited its position with an overall profit to taxpayers.
- Starr International Company, a former large AIG shareholder, sued the United States seeking over $40 billion, alleging the equity acquisition was unauthorized and unconstitutional.

## Issues

1. Whether § 13(3) of the Federal Reserve Act (and any incidental powers) authorized FRBNY to require and receive a 79.9% equity interest in AIG as consideration for emergency lending, such that the equity transfer was not an illegal exaction.
2. Whether the government’s acquisition and later restructuring of AIG equity constituted a compensable taking under the Fifth Amendment.
3. Whether shareholders proved causation and damages, including whether they suffered economic loss given findings that AIG would have entered bankruptcy absent the rescue.

## Decision

- The court held the government’s acquisition of a 79.9% equity interest in AIG was unauthorized by the Federal Reserve Act and constituted an illegal exaction.
- The court rejected the takings claim, treating the challenged conduct as ultra vires extraction of property rather than a taking for public use requiring just compensation.
- The court awarded no monetary recovery, finding shareholders failed to prove compensable economic loss because, without the rescue, AIG would have gone bankrupt and shareholders would likely have received nothing.

## Legal Principles

- An illegal exaction claim lies when the government requires money or property in contravention of the Constitution, a statute, or a regulation; recovery depends on proving entitlement and damages under traditional causation principles.
- § 13(3) emergency-lending authority is directed to lending/discounting; absent authorization, acquiring corporate equity as loan consideration exceeds statutory power.
- A claimant cannot recover damages for unlawful governmental action without showing that the action caused a net economic loss compared to the but-for scenario.
- A Fifth Amendment takings theory may be rejected where the complained-of government conduct is characterized as ultra vires coercion rather than a lawful taking that triggers compensation.

## Conclusion

The Court of Federal Claims concluded that requiring AIG to surrender 79.9% of its equity as a loan condition exceeded statutory authority and therefore constituted an illegal exaction, but it denied relief because the shareholders did not prove they were financially worse off than they would have been in an immediate AIG bankruptcy absent government intervention.


Starr Int'l Co. v. United States, 121 Fed. Cl. 428 (2015)