Greenberg’s bailout suits against U.S. government face legal challenges

Experts say the former AIG chief’s lawsuit will fail

Former American International Group Inc. CEO Maurice Greenberg’s $25 billion lawsuit against the U.S. government and the Federal Reserve Bank of New York filed in mid-November has become a significant takings case challenging legal precedents.

Greenberg’s company, Starr International, claimed the 2008 bailout by the U.S. government that took 80 percent of AIG stock was unconstitutional and violated the “takings clause” of the Fifth Amendment.

Tim Massad, assistant secretary for financial stability at the U.S. Treasury, said in a statement the government’s actions were “necessary, legal and constitutional.” However, the defendants face a formidable opponent in Starr’s attorney David Boies, known for representing the U.S in the 1999 antitrust trial with Microsoft Inc. and Al Gore in the election recount in 2000.

“Any time David Boies is asking for $25 billion, I would say this is not a normal case,” Robert Thomas of Damon Key Leong Kupchak Hasters tells Bloomberg.

However, lawyers say the case will be an uphill battle for Starr and Boies. Greenberg Traurig Shareholder Jerry Stouck told Bloomberg Starr must accept the government’s reasons for the action first, because it’s “assumed that if they took your property, they did it for a good reason.” Though the bailout was a voluntary contractual relationship, Starr must show that it lost “all or substantially all use and value of the property from the imposition of a regulation,” says attorney Robert Freilich of Freilich & Popowitz in a Bloomberg report.

Meanwhile, Professor Richard Epstein of New York University School of Law tells Bloomberg the suit will fail.

“The basic rule is when you sue the Federal Reserve acting in its regulatory capacity, even for outrageous things, they win,” Epstein says.

The case is currently in the U.S. Court of Federal Claims in Washington, which handles cases against the federal government.

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