Starr International, Inc. v. AIG, Inc.
(Southern District of New York, August 31, 2009)
In a counterclaim to a suit filed by Starr International Company, Inc. (“SICO”) against AIG seeking the return of artwork and other property, AIG claimed that SICO held certain AIG stock in trust for AIG’s benefit. Unfortunately for AIG, there were no trust documents, and it was left to claim that billion dollar oral trust had been created in its favor in 1970. In a lengthy and dramatic court opinion, Jed S. Rakoff, U.S.D.J. for the Southern District of New York, rejected AIG’s claims in total.
The claim arises from the 2005 departure of Hank Greenberg from AIG. Greenberg was the CEO and Chairman of AIG, and was a dominating force behind SICO. SICO become a holder of the stock because in 1970, a reorganization took place which resulted in substantial amounts of AIG Acquired Stock being transferred to SICO. Sometime later in the 70’s, the stock was ultimately designated to benefit a charitable trust, related to but independent of both AIG and SICO. In the meantime, SICO owed and controlled the AIG Acquired Stock, and used that stock to fund incentive compensation for AIG employees, among others.
In 2005, after Greenberg was forced out of AIG, SICO stopped funding the AIG incentive programs. AIG then claimed that it had transferred the stock to SICO to be held in trust for its own benefit, and to fund the incentive programs. Citing AIG’s lack of any evidence, the court rejected its claim. Noting that the law will recognize oral trusts where such evidence of its creation is “unequivocal,” the court held that AIG did “not come close to shouldering” its evidentiary burden. Even though the players in the 1970 reorganization were common to both AIG and SICO, the court found it “bordering on incredible” that a public company as large as AIG would “commit shares representing approximately one fourth of its total market capitalization to a trust of which it is the sole beneficiary without the slightest documentation of that fact.” It also was unable to present any witnesses who testified that such a trust existed.
A copy of the court’s decision can be found here
by Sarah J. Delaney and Joanna M. Roberto