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From Banking and Finance Law Daily, March 26, 2018

Recent decisions, cases, and petitions pending High Court review

By Richard A. Roth, J.D.

This Banking and Finance Law Daily feature presents a chart highlighting the decisions, arguments, briefs, and petitions on banking and finance issues before the 2017 term of the U.S. Supreme Court.

Currently, there are three significant banking and finance law-related cases awaiting Supreme Court review or decision. The Court has not granted certiorari in any of them.

Government bail-out contracts. The Court has declined to review a decision that Starr International Company, Inc., could not sue the federal government over the terms and results of the American International Group bail-out. According to the U.S. Court of Appeals for the Federal Circuit, the third-party prudential standing hurdle meant that Starr and other AIG shareholders it sought to represent could not claim damages for the loss of their investments even though they had suffered an injury that satisfied constitutional standing-to-sue requirements (see Banking and Finance Law Daily, May 9, 2017).

According to the opinion, the Federal Reserve Board imposed onerous terms on AIG in exchange for liquidity the company needed desperately during the financial crisis. AIG was given an $85 billion loan, at 12-percent interest, and also was required to transfer 79.9 percent of its ownership to the Federal Reserve Bank of New York in the form of preferred shares that could be converted to common shares.

Subsequent developments brought about a 1:20 reverse stock split, the government’s exercise of its conversion rights, and the government’s sale of its shares for a $17.5 billion gain. A judge for the Court of Federal Claims decided that the government had illegally exacted an ownership interest in AIG but that the shareholders had not been damaged because, had the government not acted, AIG would have been insolvent and the shareholders’ interest would have been wiped out. While the shareholders had lost 80 percent of the value of their ownership interest, 20 percent of something was better than 100 percent of nothing, the judge explained (see Banking and Finance Law Daily, June 15, 2015).

The Federal Circuit, however, decided that the illegal exaction claim was a derivative claim, not a direct claim. The shareholders were asserting an injury directly to AIG’s interests. Their claimed injury would have been a reduction in the value of their ownership as a result of the injury to AIG, and they did not have standing to assert an indirect injury.

The petition for certiorari was No. 17-540.

Supreme Court docket. For details about this and other petitions and cases pending before the Supreme Court, please consult this list of selected banking and finance law cases awaiting action in the 2017 term. Issued opinions, granted petitions, pending petitions, and denied petitions are listed separately, along with a summary of the questions presented and the current status of each case.

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