American International Group, Inc. v. Greenberg
23 Misc.3d 278 (2008)
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Rule of Law:
A fiduciary duty can arise outside of a formal relationship where special circumstances exist, such as a long-standing relationship of trust and confidence in which a dominant party makes repeated express pledges to safeguard specific assets for the other party's benefit.
Facts:
- In 1967, C.V. Starr formed American International Group, Inc. (AIG) and selected key individuals, including defendants Greenberg, Stempel, Roberts, and Freeman, as his designated successors.
- Starr's business philosophy included a compensation plan where management would have an ownership stake and share in profits.
- Following Starr's death in 1970, AIG was reorganized under defendant Greenberg's direction, and a large block of AIG stock was transferred to an affiliated company, Starr International Company, Inc. (SICO).
- Defendants, who held leadership roles at both AIG and SICO, allegedly agreed that the AIG stock held by SICO would be preserved solely to fund AIG's employee compensation plans and protect AIG from hostile takeovers.
- For over 35 years, defendants allegedly acted as fiduciaries of the stock, reaffirming their pledge not to use it for personal enrichment and keeping it in a segregated account used exclusively for AIG's compensation plan.
- During this period, AIG's management consistently comprised the voting shareholders and directors of SICO.
- In March 2005, after Greenberg resigned as AIG's CEO and Smith was terminated as CFO amidst accounting fraud investigations, they remained AIG directors until June 2005.
- Shortly after their resignations as executives, defendants allegedly seized control of SICO, removed AIG executives from SICO's board, cancelled the AIG compensation plan, and began selling the AIG stock for SICO's benefit.
Procedural Posture:
- American International Group, Inc. (AIG) sued seven of its former officers and directors in the New York Supreme Court, Commercial Division, which is a trial court.
- AIG's complaint asserted causes of action for breach of fiduciary duty and aiding and abetting the same.
- The defendants filed multiple motions to dismiss the complaint based on forum non conveniens, failure to state a claim, and lack of personal jurisdiction.
- The trial court previously denied the defendants' related motions to stay the action.
- The case is now before the trial court to rule on the defendants' motions to dismiss the complaint.
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Issue:
Does a long-standing relationship of trust and confidence, where individuals repeatedly pledge to safeguard specific corporate assets for the benefit of a company, create an enforceable fiduciary duty, even when those individuals are not acting in their formal capacity as directors of that company?
Opinions:
Majority - Ramos, J.
Yes. A fiduciary duty can arise from the special circumstances of a relationship, even without a formal agreement. The complaint sufficiently alleges that AIG reposed trust and confidence in the defendants over a lengthy period, giving rise to a fiduciary duty with respect to the shares. The court's reasoning is that a fiduciary relationship is a fact-specific inquiry and can be established where a plaintiff alleges special circumstances that transformed the parties' relationship into a fiduciary one. Factors include the closeness and duration of the relationship, the plaintiff's repose of trust, and the defendant's position of dominance. AIG's allegations of the defendants' roles as hand-picked successors, their pledges to safeguard the shares, and their 35-year course of conduct of preserving the shares for AIG's benefit are sufficient at the pleading stage to establish the existence of such a special relationship and a corresponding fiduciary duty. Furthermore, regarding the claim against Greenberg and Smith as directors, the duty of loyalty is broad and is not diluted simply because a director acts in a dual capacity for two different corporations.
Analysis:
This decision is significant for establishing that a fiduciary duty is not confined to formally defined roles like director or trustee, but can be implied from a long-standing course of conduct and express promises. It underscores that courts will look at the substance of a relationship, particularly where there is a significant power imbalance and a history of reposed trust. This precedent allows corporations to hold powerful insiders accountable for betraying long-standing commitments, even when those individuals use separate corporate entities to effectuate the alleged breach. The ruling makes it more difficult for defendants to use corporate formalities to shield themselves from claims based on historical promises and relationships of trust.
