Judge Says Greenberg Accusations Against Fed ‘Worthy of an Oliver Stone Movie’

In his 89-page opinion, Engelmayer said Starr failed to allege facts sufficient to carry its heavy burden of calling the trustees' independence from the N.Y. Fed into question.

"Starr claims that, as the global financial system teetered on the brink of collapse, the N.Y. Fed seized control of AIG," the judge said.

"Then, Starr claims, the N.Y. Fed, in an act of Napoleonic plunder, stole AIG's assets, re-distributing some to shore up other flagging financial institutions while keeping much of the residue for itself," the judge said.

"It is, however, one thing to make a sweeping and dramatic claim of government misconduct. It is quite another to plead plausibly—under the established standards of Delaware law, and based on concrete factual allegations, as [the law requires]—that FRBNY exercised control over AIG," Engelmayer said.

The court held that Starr's claim that FRBNY was a "controlling shareholder" or a "controlling lender" of AIG is not plausible in light of the facts pled and documents referenced in the amended complaint, the judge said in his opinion.

"Because Starr's fiduciary duty claims are all premised on such control, those claims must be dismissed," the judge said.

In his decision, Engelmayer said the facts stated in the case "instead plausibly permit only one conclusion, and it is inconsistent with Starr's thesis of control."

That conclusion, he said, is that in September 2008, "AIG was in extremis, and its independent board of directors, to save the company, voluntarily accepted the hard terms offered by the one and only rescuer that stood between it and imminent bankruptcy—the NY Fed, " the  opinion states.

"Specifically, based on Starr's own allegations, AIG, as of mid-September 2008, was in dire straits, whether as a result of its own business decisions, the unraveling state of the financial system, the lack of available liquidity, or a perfect storm of these and other factors, and was actively considering bankruptcy; AIG had not found any effective rescuer in its hour of need other than FRBNY, and had run out of time to keep looking; and AIG's Board, unwilling to accept bankruptcy and the 'public opprobrium' and 'risk of legal liability' that would come with it, acceded—regretfully, and perhaps angrily, but, as a matter of law, voluntarily—to the hard terms on which the NY Fed was willing to extend the $85 billion credit facility," the decision says.

"Far from describing actual control of AIG by an outside party, these allegations describe a moment of corporate desperation, in which AIG's board grabbed the sole lifeline extended to the company," Engelmayer said.

"To be sure, AIG's directors faced wrenching circumstances," the decision continues. "But Starr has not pled facts sufficient, under Delaware law, to shift responsibility from the board to the N.Y. Fed for the board's decision to agree to the term sheet and credit agreement. On the facts alleged, as of September 17 and 22, 2008, AIG's directors retained actual control of the company. They—not the N.Y. Fed—were the ones with fiduciary duties towards AIG and its shareholders."