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Starr International Co., Inc. v. United States

United States Court of Appeals, Federal Circuit

May 9, 2017


         Appeals from the United States Court of Federal Claims in No. 1:11-cv-00779-TCW, Judge Thomas C. Wheeler.

          David Boies, Boies, Schiller & Flexner, LLP, Ar-monk, NY, argued for plaintiff-appellant. Also represented by Anthony T. Kronman; Robert J. Dwyer, Alanna C. Rutherford, New York, NY; Amy J. Mauser, Washington, DC; Gregory S. Bailey, Ryan Stoll, Skadden, Arps, Slate, Meagher & Flom LLP, Chicago, IL; John Gardiner, New York, NY; Charles Fried, Cambridge, MA.

          Mark B. Stern, Appellate Staff, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-cross-appellant. Also represented by Jeffrey Eric Sandberg, Karen Schoen, Benjamin C. Mizer.

          John S. KIERNAN, Debevoise & Plimpton LLP, New York, NY, for amicus curiae Federal Reserve Bank of New York. Also represented by LINDSAY C. CORNACCHIA, Nicholas C. Tompkins; Shari D. Leventhal, Meghan McCURDY, Federal Reserve Bank of New York, New York, NY.

          DENNIS M. Kelleher, Better Markets, Inc., Washington, DC, for amicus curiae Better Markets, Inc.

          Before Prost, Chief Judge, Reyna and WALLACH, Circuit Judges.


          Prost, Chief Judge.

         Around September 2008, in the midst of one of the worst financial crises of the last century, American International Group, Inc. ("AIG") was on the brink of bankruptcy and sought emergency financing. The Federal Reserve Bank of New York ("FRBNY') granted AIG an $85 billion loan, the largest such loan to date. Central to this case, the United States ("Government") received a majority stake in AIG's equity under the loan, which the Government eventually converted into common stock and sold.

         One of AIG's largest shareholders, Starr International Co., Inc. ("Starr"), filed this suit alleging that the Government's acquisition of AIG equity and subsequent actions relating to a reverse stock split were unlawful. The U.S. Court of Federal Claims ("Claims Court") held a trial on Starr's direct claims, for which Starr sought over $20 billion in relief on behalf of itself and other shareholders. The Claims Court ultimately held that the Government's acquisition of AIG equity constituted an illegal exaction in violation of § 13(3) of the Federal Reserve Act, 12 U.S.C. § 343, but declined to grant relief for either that adjudged illegal exaction or for Starr's reverse-stock-split claims. Starr appeals the denial of direct relief for its claims. The Government cross-appeals, arguing that Starr lacks standing to pursue its equity-acquisition claims directly or, alternatively, that the Government's acquisition of equity did not constitute an illegal exaction.

         We conclude that Starr and the shareholders represented by Starr lack standing to pursue the equity-acquisition claims directly, as those claims belong exclusively to AIG. Because this determination disposes of the equity-acquisition claims, the other issues regarding the merits of those claims are rendered moot. We also conclude that the Claims Court did not err in denying relief for Starr's reverse-stock-split claims.

         We therefore vacate the Claims Court's judgment that the Government committed an illegal exaction and remand with instructions to dismiss the equity-acquisition claims that seek direct relief. We affirm the judgment as to the denial of direct relief for the reverse-stock-split claims.

         I. Background[1]

         The 2008 financial crisis exposed many of the major financial institutions in the United States to substantial liquidity risks. AIG was no exception.

         This case relates to injuries that the Government allegedly inflicted on AIG and its shareholders, including Starr, in the process of saving AIG from bankruptcy.


         AIG is a publicly traded corporation with various insurance and financial services businesses. Around 2007, it experienced a deteriorating financial condition due in part to a collapse of the housing market. Leading up to the 2008 financial crisis, AIG had become a major participant in various derivatives markets, including by guaranteeing a portfolio of credit-default-swaps ("CDSs") sold by one of its subsidiaries. These CDSs functioned like insurance policies for counterparties holding debt obligations, which in turn were often backed by subprime mortgages. When the value of mortgage-related assets declined during the 2008 financial crisis, counterparties demanded that AIG post additional cash collateral pursuant to terms of the CDSs or, in the event of a default, pay any remaining positions. By September 2008, AIG was also facing other financial challenges, including increased fund returns from securities lending, a significant decline in its stock price, the prospect of downgraded credit ratings, and difficulty obtaining additional funding. These factors contributed to mounting stress on AIG's liquidity.

         The situation came to a head on Friday, September 12, 2008, when AIG informed the FRBNY that it had urgent liquidity needs estimated between $13 billion-$18 billion.[2] Over the weekend of September 13-14, AIG's liquidity needs ballooned to $45 billion, then to over $75 billion, threatening its very survival. On the morning of Monday, September 15, another major financial institution, Lehman Brothers, filed for bankruptcy, which made obtaining private funding even more difficult.

         By the following day, the FRBNY-realizing that an AIG bankruptcy could have destabilizing consequences on other financial institutions and the economy-invoked § 13(3) of the Federal Reserve Act (or "the Act"), 12 U.S.C. § 343. That statutory provision allows the Federal Reserve Board, "[i]n unusual and exigent circumstances, " to authorize a Federal Reserve Bank to provide an interest-bearing loan to a qualifying entity, "subject to such limitations, restrictions, and regulations as the [Federal Reserve Board] may prescribe." 12 U.S.C. § 343. Specifically, an entity receiving such loan must "indorse[] or otherwise secure[] [the loan] to the satisfaction of the Federal reserve bank" and show that it "is unable to secure adequate credit accommodations from other banking institutions."[3] Id.

         The Federal Reserve Board quickly approved a Term Sheet for an $85 billion loan under § 13(3) of the Act. In addition to setting forth an interest rate and various fees, the Term Sheet provided that the FRBNY would receive 79.9% equity in AIG.

         That same day, September 16, AIG's Board of Directors ("AIG Board") met to consider the proposed Term Sheet. They discussed the pros and cons of accepting the loan, including the equity term. AIG's Chief Executive Officer ("CEO") at the time, Robert Willumstad, also conveyed to them "that the Secretary of the Treasury had informed him that as a condition to the [loan, he] would be replaced as [CEO]." J.A. 200031. According to the meeting minutes, all but one of the Directors expressed the view "that despite the unfavorable terms of the [loan, it] was the better alternative to bankruptcy for [AIG]." J.A. 200038. Over the single dissenting Director, the Board voted to approve the Term Sheet. The FRBNY then advanced money to AIG for its immediate liquidity needs, and Mr. Willumstad was replaced as CEO.

         On September 22, 2008, AIG entered into a Credit Agreement memorializing the terms of the loan. The Agreement specified that the Government, through "a new trust established for the benefit of the United States Treasury" ("the Trust"), would receive the 79.9% equity in the form of preferred stock that would be convertible into common stock. J.A. 200212. This was the agreement through which the Government acquired AIG equity.[4]The recited consideration for the equity was "$500, 000 plus the lending commitment of [the FRBNY]." J.A. 200212. AIG issued the convertible preferred stock and placed it in the Trust in 2009.[5]

         The $85 billion loan was, and remains, the largest § 13(3) loan ever granted. It is also the only instance in which the Government obtained equity as part of a § 13(3) loan.

         At this time, AIG's common stock was listed on the New York Stock Exchange ("NYSE"). In the latter part of 2008, AIG's stock sometimes dipped below $5.00 per share, prompting the NYSE to remind AIG that the NYSE had a minimum share-price requirement of $1.00 per share. The NYSE advised that it would delist stocks that failed to meet the $1.00-per-share requirement after June 30, 2009. By early 2009, AIG's common stock was occasionally closing below $1.00 per share and was therefore at risk of being delisted.

         On June 30, 2009, the same day as the NYSE deadline, AIG held an annual shareholder meeting at which shareholders voted on a number of proposals to amend AIG's Restated Certificate of Incorporation. In relevant part, the AIG Board advised shareholders to approve two proposed amendments that would alter the pool of AIG common stock. The first proposed amendment required approval by a majority of the common shareholders (which excluded the Government at the time because it held preferred stock) and would nearly double the amount of authorized common stock from five billion shares to 9.225 billion shares. The proxy statement explained that this increase would "provide the [AIG] Board . . . the ability to opportunistically raise capital, reduce debt and engage in other transactions the [AIG] Board . . . deems beneficial to AIG and its shareholders." J.A. 201112.

         The second proposed amendment was subject to a wider shareholder vote and would implement a reverse stock split at a ratio of 1:20 but would only affect the three billion issued shares out of the five billion authorized shares of common stock. The proxy statement asserted that "[t]he primary purpose of the reverse stock split [was] to increase the per share trading price of AIG Common Stock" and, accordingly, "help ensure the continued listing of AIG Common Stock on the NYSE." J.A. 201113.

         The first proposed amendment, to increase the total amount of authorized common stock, failed to pass. But a majority of shareholders, including Starr, approved the second proposed amendment toward a 1:20 reverse stock split of the issued common stock. As a result, the amount of AIG issued common stock decreased from approximately three billion shares to approximately 150 million shares, while the total amount of authorized common stock remained at five billion shares. This solution avoided NYSE delisting. It also made available enough unissued shares of common stock (approximately 4.85 billion shares, i.e., over 79.9% of AIG authorized common stock) to allow the Government to convert all of its preferred stock in AIG to common stock.

         More than a year later, in 2011, the Government did just that, converting its 79.9% equity from preferred stock to more than 562 million shares of AIG common stock as part of a restructuring agreement with AIG. Then, between May 2011 and December 2012, the Government sold all of those shares of common stock for a gain of at least $17.6 billion.

         AIG ultimately repaid the $85 billion loan plus around $6.7 billion in interest and fees, and remains a publicly traded corporation today.


         Starr is a privately held Panama corporation with its principal place of business in Switzerland and was one of the largest shareholders of AIG common stock at all times relevant to this case. Its Chairman and controlling shareholder is Maurice Greenberg, who served as CEO of AIG until 2005.

         In 2011, Starr filed the underlying suit in the Claims Court against the Government.[6] Starr recognizes that the § 13(3) loan to AIG was "ostensibly designed to protect the United States economy and rescue the country's financial system" but alleges that the Government used "unlawful means" in what "amounted to an attempt to 'steal the business.'" J.A. 502253, 502257.

         Starr asserted claims directly-on behalf of itself and similarly situated shareholders-for individual relief. It also asserted claims derivatively, on behalf of AIG, for relief that would flow to the corporation. The Claims Court joined nominal defendant AIG as a necessary party for the derivative claims under United States Court of Federal Claims Rule ("RCFC") 19(a). See Starr Int'l Co. v. United States ("Starr 7"), 103 Fed.Cl. 287 (2012). The Claims Court also certified two classes of shareholders and appointed Starr as the representative for both classes: (1) the Credit Agreement Class (generally, shareholders of AIG common stock from September 16-22, 2008, when AIG agreed to the Term Sheet and the Credit Agreement); and (2) the Stock Split Class (generally, shareholders of AIG common stock as of June 30, 2009, the date of the reverse-stock-split vote).[7] Starr Int'l Co. v. United States ("Starr III'), 109 Fed.Cl. 628, 636-37 (2013).

         In 2013, the trial court dismissed Starr's derivative claims after the AIG Board refused Starr's demand to pursue litigation.[8] Starr Int'l Co. v. United States ("Starr IV), 111 Fed.Cl. 459, 480 (2013). Starr does not appeal the dismissal of those derivative claims. Our discussion therefore focuses on the claims that Starr, on behalf of itself and the two shareholder classes, continues to press for direct relief.


         There are two sets of claims corresponding to the various events surrounding the § 13(3) loan to AIG: (1) the "Equity Claims" brought by the Credit Agreement Class and Starr relating to the Government's acquisition of 79.9% of AIG equity; and (2) the "Stock Split Claims" brought by the Stock Split Class and Starr relating to the 1:20 reverse stock split. Hereinafter, references to Starr include the Credit Agreement Class and the Stock Split Class when discussing their respective claims.

         With respect to the Equity Claims, Starr maintains that the Government's acquisition of 79.9% of AIG's equity was an illegal exaction because the Federal Reserve Act does not authorize the Government to take equity in a corporation as part of a § 13(3) loan. Starr also asserts, in the alternative, that the Government's equity acquisition was a Fifth Amendment taking without just compensation and a violation of the unconstitutional conditions doctrine.[9]

         Separately, through the Stock Split Claims, Starr alleges injuries from the 1:20 reverse stock split. Even though the proxy statement noted that the reverse stock split was aimed at avoiding NYSE delisting, Starr assigns it a more nefarious intent. According to Starr, the Government wanted to increase the relative amount of AIG's unissued common stock to above 79.9% so that it could convert all of its preferred stock into common stock. The Government allegedly foresaw that the proposed amendment to increase the total amount of authorized AIG common stock (including unissued shares) would not pass a common shareholder vote-a vote that the Government did not control-so it "deliberately engineered" the reverse stock split to guarantee a decrease in the number of issued shares, which would result in a corresponding increase in the proportion of unissued shares to over 79.9%. J.A. 502327. Starr alleges that this scheme completed the Government's taking of shareholder interests and "deprive[d] [Starr] of its right to block further dilution of its interests in AIG." Appellant's Opening Br. 58.[10]


         The Claims Court allowed Starr to proceed to trial on the claims that Starr had asserted directly. In relevant part, the court determined at the pleading stage that "Starr has standing to challenge the FRBNY's compliance with Section 13(3) of the [Act]." Starr Int'l Co. v. United States CStarr IT'), 106 Fed.Cl. 50, 62 (2012). It later reaffirmed its ruling on direct standing despite new developments asserted by the Government. Starr IV, 111 Fed.Cl. at 481-82. The Government moved to certify the question of direct standing for interlocutory appeal, but the trial court denied that motion, in part, to develop a "full evidentiary record" on the issue. Starr Int'l Co. v. United States ("Starr V), 112 Fed.Cl. 601, 605-06 (2013). The trial court did not, however, revisit the question of standing after trial, noting only that it "ha[d] addressed a number of jurisdictional and standing questions at earlier stages of th[e] case." Starr VI, 121 Fed.Cl. at 463.

         On the Government's motion, the Claims Court dismissed Starr's unconstitutional conditions claim.[11] Starr II, 106 Fed.Cl. at 83. The Claims Court then proceeded to a thirty-seven-day trial on the remaining claims, all of which sought direct shareholder relief.

         Following trial, the court held that the Government's acquisition of AIG equity was not permitted under the Federal Reserve Act and was therefore an illegal exaction. Starr VI, 121 Fed.Cl. at 466. The court, however, declined to grant Starr any monetary relief for the adjudged illegal exaction, on the ground that "the value of the shareholders['] common stock would have been zero" absent the § 13(3) loan. Id. at 474. The court found that Starr was actually helped, rather than harmed, by the Government because by extending the $85 billion loan to AIG, "the Government significantly enhanced the value of the AIG shareholders' stock."[12] Id.

         The court further denied relief for the Stock Split Claims, finding that the primary purpose for the reverse stock split was to avoid delisting by the NYSE, not to avoid a shareholder vote as Starr had alleged. Id. at 455-56.

         Starr and the Government cross-appeal from the judgment of the Claims Court. We have jurisdiction over these appeals pursuant to 28 U.S.C. § 1295(a)(3).

         II. Discussion

         Starr argues with respect to the Equity Claims that the trial court erred in denying monetary relief for an illegal exaction and, alternatively, in dismissing its unconstitutional conditions claim.[13] Starr separately argues that the trial court erred in denying relief for its Stock Split Claims.

         The Government contends that Starr lacks standing to pursue the Equity Claims on behalf of itself and other shareholders because those claims are exclusively derivative and belong to AIG. Alternatively, the Government asks us to reverse the trial court's conclusion that the equity acquisition was an illegal exaction vis-a-vis Starr.

         We review the Claims Court's conclusions of law, including that of standing, de novo. Norman v. United States, 429 F.3d 1081, 1087 (Fed. Cir. 2005). We review any factual findings, including those underlying the standing analysis and the denial of relief for the Stock Split Claims, for clear error. Id.; Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009).

         Before we can address the merits of Starr's claims, we consider whether Starr has standing to pursue those claims directly, on behalf of itself and other shareholders. See Castle v. United States, 301 F.3d 1328, 1337 (Fed. Cir. 2002) ("Standing is a threshold jurisdictional issue[] . . . and therefore may be decided without addressing the merits of a determination.")- For the reasons below, we conclude that it does not have direct standing to pursue the Equity Claims. Accordingly, we have no occasion in this case to address whether the Government's acquisition of AIG equity was an illegal exaction; what damages, if any, would attach; and whether the unconstitutional conditions doctrine has any applicability in this case.[14]We do, however, address the merits of Starr's appeal with respect to the Stock Split Claims.[15]


         "Federal courts are not courts of general jurisdiction; they have only the power that is authorized by Article III of the Constitution and the statutes enacted by Congress pursuant thereto." Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986). In keeping with this principle, the doctrine of standing "serv[es] to identify those disputes which are appropriately resolved through the judicial process." Whitmore v. Arkansas, 495 U.S. 149, 155 (1990). The Claims Court, "though an Article I court, applies the same standing requirements enforced by other federal courts created under Article III." Anderson v. United States, 344 F.3d 1343, 1350 n.l (Fed. Cir. 2003) (citation omitted). The plaintiff bears the burden of showing standing, and because standing is "an indispensable part of the plaintiffs case, each element must be supported in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation." Lujan v. Defenders of Wildlife, 504 U.S. 555, 561(1992).

         For a party to have standing, it must satisfy constitutional requirements and also demonstrate that it is not raising a third party's legal rights. Kowalski v. Tesmer, 543 U.S. 125, 128-29 (2004). Unless otherwise noted below, we assume arguendo-as the parties do-that Starr has satisfied the requirements of constitutional standing derived from Article III, namely: (1) an "actual or imminent" injury-in-fact that is "concrete and particularized"; (2) a "causal connection between the injury and the conduct complained of; and (3) "likely[] ... redress [ability] by a favorable decision." Lujan, 504 U.S. at 560-61 (internal quotation marks omitted). We focus, instead, on the third-party standing requirement. The Concurrence faults us for not addressing constitutional standing first, but "[i]t is hardly novel for a federal court to choose among threshold grounds for denying audience to a case on the merits."[16] Ruhrgas, 526 U.S. at 585; see, e.g., Kowalski, 543 U.S. at 129 (assuming Article III standing to "address the alternative threshold question" of third-party standing).

         The Supreme Court has historically referred to the principle of third-party standing as a "prudential" principle: "that a party 'generally must assert his own legal rights and interests, and cannot rest his claim to relief on the legal rights or interests of third parties.'"[17] Kowalski, 543 U.S. at 129 (quoting Warth v. Seldin, 422 U.S. 490, 499 (1975)); see also Franchise Tax Bd. of Cat. v. Alcan Aluminum Ltd., 493 U.S. 331, 336 (1990) (calling the limitation a "longstanding equitable restriction"). This principle of third-party standing "limit[s] access to the federal courts to those litigants best suited to assert a particular claim."[18] Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 100 (1979). It also recognizes that, as is the case here, the third-party right-holder may not in fact wish to assert the claim in question. See Singleton v. Wulff 428 U.S. 106, 116 (1976) (distinguishing from a third-party's inability to assert a claim).

         Starr submits that it satisfies the third-party standing principle because the Government's acquisition of equity harmed Starr's personal "economic and voting interests in AIG, " independent of any harm to AIG. Appellant's Resp. & Reply Br. 24. The Government submits that this case presents "classic derivative claim[s]" that belong exclusively to AIG. Oral Argument 33:13-33:24.

         Because Starr presses the Equity Claims under federal law, federal law dictates whether Starr has direct standing. Cf Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 97 (1991) ("[A]ny common law rule necessary to effectuate a private cause of action ... is necessarily federal in character."); see also Wright & Miller et al., Federal Practice & Procedure § 1821 ("[I]n suits in which the rights being sued upon stem from federal law, federal law will control the issue whether the action is derivative."). But as the parties recognize, the law of Delaware, where AIG is incorporated, also plays a role. See Government's Principal & Resp. Br. 31 (stating that "[t]he principles for distinguishing direct from derivative claims are well-established and consistent across federal and state law" and applying Delaware law); Appellant's Resp. & Reply Br. 24, 26-31 (applying Delaware law for distinguishing between direct and derivative claims).

         In the context of shareholder actions, both federal law and Delaware law distinguish between derivative and direct actions based on whether the corporation or the shareholder, respectively, has a direct interest in the cause of action. Under federal law, the shareholder standing rule "generally prohibits shareholders from initiating actions to enforce the rights of [a] corporation unless the corporation's management has refused to pursue the same action for reasons other than good-faith business judgment." Franchise Tax Bd., 493 U.S. at 336. Only "shareholders] with a direct, personal interest in a cause of action, " rather than "injuries [that] are entirely derivative of their ownership interests" in a corporation, can bring actions directly. Id. at 336-37.

         Under Delaware law, whether a shareholder's claim is derivative or direct depends on the answers to two questions: "(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders, individually)?" Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004) (en banc). To be direct, a claim need not be based on a shareholder injury that is "separate and distinct from that suffered by other stockholders." Id. at 1035 (internal quotation marks omitted). A claim may be direct even if "all stockholders are equally affected." Id. at 1038-39.

         There exists a "presumption that state law should be incorporated into federal common law" unless doing so in a particular context "would frustrate specific objectives of the federal programs." Kamen, 500 U.S. at 98. And this presumption "is particularly strong in areas in which private parties have entered legal relationships with the expectation that their rights and obligations would be governed by state-law standards." Id. Relevant here, the Supreme Court has observed that "[c]orporation law is one such area." Id.; see also Burks v. Lasher, 441 U.S. 471, 478 (1979) ("Congress has never indicated that the entire corpus of state corporation law is to be replaced simply because a plaintiffs cause of action is based upon a federal statute."). Delaware law is consistent with, and does not frustrate, the third-party standing principle under federal law. See Kowalski, 543 U.S. at 130 (stating that "a party seeking third-party standing" must show a "'close' relationship with the person who possesses the right" and a "'hindrance' to the possessor's ability to protect his own interests"); Franchise Tax Bd., 493 U.S. at 336 (setting forth the shareholder standing rule). Accordingly, Delaware law is applicable to the question of whether the Equity Claims are direct in nature.

         Although Starr claims that it was directly affected by the Government's acquisition of equity, its alleged injuries require first showing that AIG was either "caused to overpay for [the loan] that it received in exchange" for newly issued stock or forced to issue that stock without any legal basis whatsoever. Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006). Typically, "claims of corporate overpayment are treated as causing harm solely to the corporation and, thus, are regarded as derivative." Id. "Such claims are not normally regarded as direct, because any dilution in value of the corporation's stock is merely the unavoidable result (from an accounting standpoint) of the reduction in the value of the entire corporate entity, of which each share of equity represents an equal fraction." Id. The proper remedy for such harms usually goes to the corporation as "a restoration of the improperly reduced value." Id.

         The injuries that Starr alleges with respect to the Government's acquisition of AIG equity are therefore quintessentially "dependent on an injury to the corporation, " and any remedy would flow to AIG. Tooley, 845 A.2d at 1036. Absent an applicable recognition under federal or Delaware law that Starr's alleged injuries give rise to a direct cause of action, the Equity Claims would be exclusively derivative in nature.

         We make a couple of observations at the outset to provide context to our discussion. We then proceed to address whether Starr has direct standing under Delaware law to pursue the Equity Claims despite their derivative character. Finally, we consider several alternative theories of direct standing that Starr submits, including theories under federal law.


         First, we observe that Starr does not appear to meaningfully distinguish among the various Equity Claims for purposes of standing. Rather, Starr generally characterizes the Equity Claims as alleging "the wrongful expropriation of [its] economic and voting interests in AIG for the Government's own corresponding benefit." Appellant's Resp. & Reply Br. 22. Because Starr has the burden of demonstrating standing and relies primarily on this theory of harm, we do too. See FW/PBS, Inc. v. City of Dallas, 493 U.S. 215, 231 (1990) ("[S]tanding cannot be inferred argumentatively from averments in the pleadings." (internal quotation marks omitted)).

         Second, we address Starr's argument that its case for direct standing is particularly compelling because the Government's acquisition of newly issued equity should be equated with a physical exaction of stock directly from AIG shareholders. Specifically, Starr urges us to view the equity acquisition as being "indistinguishable from a physical seizure of four out of every five shares of [shareholders'] stock." Appellant's Resp. & Reply 24-25. To do otherwise, Starr submits, would be to "elevate form over substance." Id. at 24.

         We decline Starr's invitation to view the challenged conduct as it wishes. There is a material difference between a new issuance of equity and a transfer of existing stock from one party to another. Newly issued equity necessarily results in "an equal dilution of the economic value and voting power of each of the corporation's outstanding shares." Rossette, 906 A.2d at 100. In contrast, a transfer of existing stock creates an individual relationship between the transferor and the transferee. Equating AIG's issuance of new equity with a direct exaction from shareholders would largely presuppose the search for a direct and individual injury-e.g., the "separate harm" that results from "an extraction from the public shareholders and a redistribution to the controlling shareholder, of a portion of the economic value and voting power embodied in the minority interest." Id. We therefore do not equate the Government's acquisition of equity with a physical seizure of Starr's stock.


         Having addressed the threshold issues above, we turn to Starr's primary argument for standing. Starr submits, as the Claims Court decided at the pleading stage, that the Equity Claims fall within a "dual-nature" exception under Delaware law.

         This dual-nature exception recognizes that certain shareholder claims may be "both derivative and direct in character." Rossette, 906 A.2d at 99. This exception addresses circumstances when a "reduction in [the] economic value and voting power affected the minority stockholders uniquely, and the corresponding benefit to the controlling stockholder was the product of a breach of the duty of loyalty well recognized in other forms of self-dealing transactions." Id. at 102. Accordingly, shareholder claims are both derivative and direct under Delaware law when two criteria are met: "(1) a stockholder having majority or effective control causes the corporation to issue 'excessive' shares of its stock in exchange for assets of the controlling stockholder that have a lesser value, " and "(2) the exchange causes an increase in the percentage of the outstanding shares owned by the controlling stockholder, and a corresponding decrease in the share percentage owned by the public (minority) shareholders." Id. at 100; see also Gatz v. Ponsoldt, 925 A.2d 1265, 1278 (Del. 2007) (same).

         Starr argues that the Equity Claims fall within the dual-nature exception because the Government-though not a majority stockholder when it acquired AIG equity- was the "controlling" party that caused terms of the § 13(3) loan to be unduly favorable to itself, at the expense of AIG shareholders. To establish "control" at the time of the equity acquisition, Starr relies on the trial court's finding that the Government, "as lender of last resort, " used "a complete mismatch of negotiating leverage" to "force AIG to accept whatever punitive terms were proposed" for the § 13(3) loan. Starr VI, 121 Fed.Cl. at 435. The trial court found that the Government had "control" in this sense starting from September 16, 2008 (the date of the Term Sheet). Id. at 447-48. We assume, without deciding, that the Government had such leverage over AIG as of that date.

         Starr's emphasis on such leverage, however, misses the mark under the dual-nature exception's requirement for "majority or effective control." The dual-nature exception stems from a concern about the "condonation of fiduciary misconduct" at the expense of minority shareholders. Rossette, 906 A.2d at 102; see also Feldman v. Cutaia, 956 A.2d 644, 657 (Del. Ch. 2007) ("[I]t is clear from [Rossette and Gatz] that the Delaware Supreme Court intended to confine the scope of its rulings to only those situations where a controlling stockholder exists. Indeed, any other interpretation would swallow the general rule that equity dilution claims are solely derivative . . . ."). Although "control" does not necessarily require the self-dealing party to be a pre-existing majority stockholder, Delaware case law has consistently held that a party has control only if it acts as a fiduciary, such as a majority stockholder or insider director, or actually exercises direction over the business and affairs of the corporation. See Feldman, 956 A.2d at 657 (stating the "well-established test for a controlling stockholder under Delaware law"); Gilbert v. El Paso Co., 490 A.2d 1050, 1055 (Del. Ch. 1984) (stating that a minority shareholder may have "control" through an "actual exercise of direction over corporate conduct"); see, e.g., Gatz, 925 A.2d at 1280-81 (requiring a "fiduciary [who] exercises its control over the corporate machinery to cause an expropriation of economic value and voting power from the public shareholders"); In re Tri-Star Pictures, Inc., 634 A.2d 319, 329-30 (Del. 1993) (considering whether there was "a fiduciary relationship" before determining if shareholders suffered individual harm); Carsanaro v. Bloodhound Techs., Inc., 65 A.3d 618, 658 (Del. Ch. 2013) (extending the rationale for the dual-nature exception to "non-controller issuances" caused by "insider[]" directors owing fiduciary duties to shareholders).

         Outside third parties with leverage over a transaction, even in a take-it-or-leave-it scenario, do not necessarily have a responsibility to protect the interests of a counterparty, less so the interests of a counterparty's constituents. Starr has not shown that the Government, through its alleged leverage, owed any fiduciary duties to Starr at the time of the equity acquisition. Cf. In re J.P. Morgan Chase & Co. S'holder Litig., 906 A.2d 766, 774-75 (Del. 2006) (observing that the dual-nature exception has "no application . . . where the entity benefiting from the allegedly diluting transaction ... is a third party rather than an existing significant or controlling stockholder" (alterations in original) (internal quotation marks omitted)). Nor has Starr sufficiently shown that the Government actually exercised direction over AIG's corporate conduct, even assuming that the AIG Board was faced with a dire dilemma between accepting a § 13(3) loan or filing for bankruptcy. While there of course may be instances in which the Government does exercise the requisite "control, " the circumstances here do not arise to that level.

         The Claims Court nevertheless found the Government to be "sufficiently analogous" to a party owing fiduciary duties to AIG shareholders. Starr II, 106 Fed.Cl. at 65. It reasoned that the Government had a "preexisting duty" to AIG shareholders under the Fifth Amendment not to take private property for public use without paying just compensation." Id. Although Starr similarly argues that the Government had a "duty" under the Fifth Amendment, which we address in more detail below, it does not expressly defend the trial court's analogy equating the Government's role to that of a corporate fiduciary for purposes of the dual-nature exception. See Appellant's Resp. & Reply Br. 26-29; Oral Argument 6:50-6:53. Starr does not provide any controlling authority that would support the analogy. And we see no rationale to support it.

         Therefore, Starr has not demonstrated that it has direct standing to pursue the Equity Claims by virtue of the ...

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