People v. Greenberg (N.Y. App. Div. 1st Dep’t May 8, 2012)
On March 8, 2012 New York’s Appellate Division, First Department, denied summary judgment motions filed by two former executives of American International Group, Inc. (“AIG”), ex-CEO Maurice “Hank” Greenberg and ex-CFO Howard Smith, and New York’s Attorney General (“AG”), clearing the way for the now seven-year-old case to go to trial.
The case against the two former executives alleges violations of Executive Law § 63(12) and the Martin Act, General Business Law § 352 et seq. The case alleges statutory violations against the former executives based upon their role in fraudulent transactions designed to portray an unduly positive picture of the insurer’s loss reserves and underwriting performance. The insurer, formerly the largest insurance company in the world, entered into a settlement agreement with the AG. The AG and both the former executives filed summary judgment motions. In its motion, the AG argued that the executives knew of, and participated in, two unlawful reinsurance schemes. For their part, the executives argued that the AG’s enforcement powers under the Martin Act and Executive Law are preempted by federal law.
The trial court denied summary judgment to the executives, finding that there was no evidence that Congress intended to preempt the claims, and granted partial summary judgment to the AG based on a finding that the executives had knowledge of, and participated in, one of two challenged transactions, and that this behavior constituted violations of the Executive Law § 63(12) and General Business Law § 352-c(1)(a) and (c).
On appeal, the First Department found that the record evidence presented triable issues of fact as to whether the executives knew of, or participated in, the fraudulent aspects of both schemes given the nature and degree of their personal involvement in both of the challenged transactions. The appeals court ruled that summary resolution of the executives’ knowledge and participation in the two challenged schemes was not determinable as a matter of law. Therefore, partial summary judgment in favor of the AG was inappropriate.
With regard to federal preemption issue, the appeals court agreed that there was no evidence that Congress intended to preempt the claims: “[N]othing in the language or legislative history of the cited legislation indicates Congress intended to preempt this civil enforcement action under the Martin Act and the Executive Law.” In their motions, the executives had sought dismissal of the entire suit, arguing that the AG’s case was “expressly” barred by the Securities Litigation Uniform Standards Act of 1998. They also claimed that the suit conflicted with Congress’s intent to create a uniform federal standard for securities litigation, pointing to the Private Securities Litigation Reform Act of 1995 and the National Securities Markets Improvement Act of 1996. However, the First Department came to the opposite conclusion, writing: “In fact, the cited statutes, their legislative histories and the case law presuppose an important role for state attorneys general in investigating fraud and bringing civil actions to enjoin wrongful conduct, vindicate the rights of those injured thereby, deter future fraud and maintain the public trust.”
On May 14, 2012 the executives sought permission on to appeal the Third Department decision to the Court of Appeals, New York’s highest court.
For a copy of the decision click here