On May 6, Judge Mariana Pfaelzer of the United States District Court for the Central District of California allowed American International Group, Inc. (AIG) to proceed with several of its claims against Bank of America and related entities arising from AIG’s purchase of Countrywide-issued RMBS. The court held that AIG has standing to bring suit, rejecting the argument that AIG had assigned its claims to the Federal Reserve Bank of New York. Among other causes of action, the court upheld certain claims for fraudulent inducement on the grounds that AIG adequately alleged misstatements regarding loan-to-value ratios, compliance with underwriting guidelines, appraisal values and credit ratings, but dismissed fraud claims as to borrower-provided owner-occupancy data. The court also dismissed AIG’s claims based on alleged oral misrepresentations for failure to specify the speakers, and dismissed AIG’s fraud claims against two underwriters for failure to allege awareness of any misconduct at Countrywide. Order.
American International Group
Federal Appellate Court Affirms Dismissal of AIG Derivative Suit
On March 17, 2011, the Second Circuit Court of Appeals affirmed a district court’s dismissal of plaintiff Louisiana Municipal Police Employees Retirement System’s derivative action on behalf of American International Group (“AIG”) and certain of its current and former directors and officers for breaches of fiduciary duty, waste of corporate assets, unjust enrichment and contribution, as well as violations of the Securities and Exchange Act Sections 20(a) and 10(b). Plaintiff’s Complaint alleged that current and former AIG directors and officers failed to properly oversee the company’s credit default swap transactions, particularly as they related to RMBS-backed CDOs, and made misstatements concerning the company’s financial health and risk management. The Second Circuit panel affirmed the trial court’s dismissal of the case for failure to make a demand on AIG’s Board, finding that plaintiffs had not met the burden for demonstrating demand futility, and noting that “directors are entitled to a presumption that they were faithful to their fiduciary duties.” 2nd Circuit Order. SDNY Order.