American Intl. Group Inc. v. Greenberg

• Decision Date: 03 December 2008
• Docket Number: No. 600885/08,600885/08
• Parties: AMERICAN INTERNATIONAL GROUP, INC., Plaintiff, v. MAURICE R. GREENBERG et al., Defendants.
• Court: New York Supreme Court

23 Misc.3d 278

877 N.Y.S.2d 614

2008 NY Slip Op 28536

AMERICAN INTERNATIONAL GROUP, INC., Plaintiff, v. MAURICE R. GREENBERG et al., Defendants.

No. 600885/08

Supreme Court, New York County.

December 3, 2008.

Sercarz & Riopelle, LLP, New York City (Roland Riopelle of counsel), for Ernest E. Stempel, defendant.

Law Office of Alan Futerfas, New York City (Alan Futerfas of counsel), for John J. Roberts, defendant.

O'Shea Partners LLP, New York City (Sean O'Shea of counsel), for Houghton Freeman, defendant.

Boies, Schiller & Flexner, LLP, New York City (Chris Duffy and Nicholas Gravante of counsel), for Maurice R. Greenberg and another, defendants.

Winston & Strawn LLP, New York City (Eric Robinson and Vincent Sama of counsel), for Howard I. Smith, defendant.

Skadden, Arps, Slate, Meagher & Flom LLP, New York City (John Gardiner of counsel), for Edward E. Matthews, defendant.

Flemming Zulack Williamson Zauderer LLP, New York City (Jonathan Lupkin of counsel), for L. Michael Murphy, defendant.

Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York City (Roberta Kaplan of counsel), for plaintiff.

OPINION OF THE COURT

CHARLES EDWARD RAMOS, J.

In motion sequence No. 001, defendant Ernest E. Stempel moves to stay this action pending the resolution of an action in the United States District Court, Southern District of New York, captioned Starr Intl. Co., Inc. v American Intl. Group, Inc. (federal court action),¹ and alternatively to dismiss the complaint (CPLR 2201, 3211 [a] [7], [8]).

In motion sequence No. 002, defendant John J. Roberts moves to stay this action, and alternatively, to dismiss the complaint (CPLR 327, 2201, 3211 [a] [7]).

In motion sequence No. 003, defendant Houghton Freeman moves to stay this action, and alternatively to dismiss the second and third causes of action (CPLR 2201, 3211 [a] [7]).

In motion sequence Nos. 006 and 008, defendants Maurice R. Greenberg and Howard I. Smith move to stay this action, and alternatively to dismiss the complaint (CPLR 327 [a]; 2201, 3211 [a] [7]).

In motion sequence No. 007, defendant Edward E. Matthews moves to stay this action, and alternatively to dismiss the complaint (CPLR 2201, 3016 [b]; 3211 [a] [1], [7]).

In motion sequence No. 009, defendant L. Michael Murphy moves to stay this action, and alternatively to dismiss (CPLR 2201, 3211 [a] [7]).

Previously, on November 6, 2008, this court denied those portions of the motions that sought a stay of this action, and severed and reserved for subsequent disposition the remainder.

Motion sequence Nos. 001 through 003, and 006 through 009 are herein consolidated for disposition with respect to those portions of the motions that were not addressed in the prior decision (CPLR 327, 3016 [b]; 3211 [a] [1], [7], [8]).

Background²

In this action for damages, plaintiff American International Group, Inc. seeks to remedy alleged breaches of fiduciary duty by certain of AIG's founders, and former officers and directors, for their alleged misappropriation of a special block of AIG shares, worth approximately $20 billion in 2005.

The seven individual defendants are Greenberg, Smith, Matthews, Stempel, Murphy, Roberts and Freeman (collectively, defendants). In addition to serving as AIG's founders, directors and officers, defendants were all voting shareholders of AIG affiliate and nonparty Starr International Company, Inc.

The genesis of the alleged fiduciary relationship between AIG and defendants is AIG's formation in 1967 by C.V. Starr, as a wholly owned subsidiary of American International Reinsurance Co. (AIRCO). Starr hand-picked nine men, that included defendants Greenberg, Stempel, Roberts and Freeman (control defendants), to be his successors and to direct and control the four principal companies that comprised Starr's global network of insurance operations, including AIG, SICO, and nonparty C.V. Starr & Co.

AIG alleges that Starr's vision for his insurance organization was that a unique entrepreneurial culture be perpetuated, that included a compensation philosophy that management should have an ownership stake in the business and share in the profits.

In 1970, shortly after Starr's death, the four main entities of Starr's network, including AIG and SICO, were reorganized under the direction of Greenberg. As part of the reorganization, most of the insurance operations were transferred to AIG, indirectly through AIRCO, in exchange for AIRCO stock, that was exchanged for AIG common stock when AIRCO merged into AIG. Approximately $130 million worth of AIG stock was transferred to SICO (the shares).

As part of the reorganization, SICO allegedly agreed to continue funding a profit participation and deferred compensation plan to its employees, who became AIG employees in the 1970 reorganization. At this time, the control defendants, as Starr's hand-picked successors, agreed that the value of the shares would be preserved solely for the benefit of current and future AIG employees and used to fund the incentive compensation plan maintained by SICO, in addition to protecting AIG from a hostile takeover attempt.

As part of this alleged agreement, the control defendants expressly agreed to serve as the fiduciaries of the shares, that represented the wealth created by past generations. As part of this pledge, they allegedly promised that the value of the shares would never be used for the personal enrichment of SICO, or the individual SICO voting shareholders, including the control defendants.

Moreover, in order to fulfill the purposes of the alleged trust and to ensure that defendants' fiduciary duties to AIG to safeguard the shares were not violated, it was agreed by AIG directors also serving as SICO voting shareholders, that AIG management would always control SICO. Consistently, from October 1970 to March of 2005, AIG officers and directors always comprised the voting shareholders and directors of SICO. Defendants were all officers and directors of AIG and voting shareholders and directors of SICO.³

In addition to the control defendants, remaining defendants Smith, Matthews, Murphy, and Freeman, who each became either an AIG officer or director or SICO voting shareholder at a subsequent point in time, each adopted and reaffirmed the pledge to serve as fiduciaries of the value and use of the shares for the benefit of AIG and for future generations of AIG employees.

The shares were placed in a segregated account with restricted access at Chase Manhattan Bank in New York for over 35 years. The shares were withdrawn only to fund AIG's deferred compensation plan until March of 2005, when AIG, Greenberg and Smith were under investigation by state and federal officials for accounting fraud.

At that time, Greenberg resigned as AIG's CEO, and Smith was terminated as AIG's CFO. Greenberg and Smith remained directors of AIG until June of 2005.⁴

On March 28, 2005, AIG alleges that defendants, at Greenberg's request, seized control of SICO by causing nine of the AIG executives, then serving as SICO directors, to be removed from the SICO board. The following month, Greenberg informed AIG, through Matthews, that SICO was reneging on the 2005/2006 compensation plan, and that there would be no more compensation plans in the future. All of the defendants allegedly participated in this decision.

The defendants then caused SICO to formally cancel the compensation plan, and announced their intention of selling the shares. Since that time, defendants allegedly caused SICO to sell portions of the shares, the proceeds of which have allegedly been used to invest in a venture capital and private equity firm. AIG commenced this action in March 2008, asserting three causes of action for breach of fiduciary duty against Greenberg and Smith in their capacity as AIG directors, breach of fiduciary duties against all defendants, and aiding and abetting breach of fiduciary duty against defendants.

Discussion

I. Forum Non Conveniens

Defendants⁵ move to dismiss this action on the ground of forum non conveniens. They contend that the internal affairs doctrine and AIG's improper claim splitting, in addition to other relevant factors, render Delaware the most appropriate forum for this action.

AIG asserts that defendants have not met their heavy burden of demonstrating that New York is an inappropriate forum.

Defendants' motion to dismiss under the doctrine of forum non conveniens fails for two primary reasons. Defendants offer no persuasive reason why New York is an inconvenient forum for an action involving former directors of a corporation headquartered in New York, several of which are already defending against a pending action here. Additionally, New York is already the forum for another pending, related action. Further, defendants fail to persuade that Delaware, AIG's state of incorporation, is more convenient than New York, thereby warranting dismissal of the present action in its favor.

The common-law doctrine of forum non conveniens, codified in CPLR 327, permits a court to dismiss an action if it would more properly be heard in another forum. Whether to dismiss in favor of another forum is left to the sound discretion of the court (Shin-Etsu Chem. Co., Ltd. v ICICI Bank Ltd., 9 AD3d 171, 175-176 [1st Dept 2004]).

Although no one factor is controlling, courts should balance factors including the factual nexus between New York and the action, the burden on New York courts, the potential hardship to the defendant of litigating here, the availability of an alternative forum in which the plaintiff may bring suit, and the residency of the parties (Kinder Morgan Energy Partners, L.P. v Ace Am. Ins. Co., 55 AD3d 482, 482 [1st Dept 2008]; Kuwaiti Eng'g Group v Consortium of Intl. Consultants, LLC, 50 AD3d 599, 600 [1st Dept 2008]). Ultimately, the plaintiff's choice of forum should not be disturbed unless the balance strongly favors the jurisdiction in which the defendant seeks to litigate the claims (Anagnostou v...