UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------------------------------------x IN RE AMERICAN INTERNATIONAL GROUP, : No. 07 CV 10464 (LTS) INC. 2007 DERIVATIVE LITIGATION : ORAL ARGUMENT REQUESTED ------------------------------------------------------------------x MEMORANDUM OF LAW IN SUPPORT OF MOTION TO DISMISS BY NOMINAL DEFENDANT AMERICAN INTERNATIONAL GROUP, INC. WEIL, GOTSHAL & MANGES LLP 767 Fifth Avenue New York, NY 10153 (212) 310-8000 (Telephone) (212) 310-8007 (Fax) Attorneys for Nominal Defendant American International Group, Inc. Of Counsel: Joseph S. Allerhand Stephen A. Radin Robert F. Carangelo Stacy Nettleton August 5, 2009 TABLE OF CONTENTS Page PRELIMINARY STATEMENT ............................................................................................. 1 STATEMENT OF FACTS ...................................................................................................... 4 A. The Parties ................................................................................................................... 4 B. The Alleged Wrongdoing ............................................................................................ 5 C. AIG’s Current Board, To Whom A Demand Now Would Be Made........................... 8 ARGUMENT........................................................................................................................... 9 PLAINTIFF LACKS STANDING UNDER FEDERAL RULE 23.1 AND DELAWARE LAW DUE TO ITS FAILURE TO MAKE A PRE-LITIGATION DEMAND................................................................................................................................ 9 A. The Demand Requirement Serves Important Corporate Governance Purposes And Imposes “Stringent Requirements Of Factual Particularity” ............................... 9 B. Plaintiff’s Complaint Does Not Allege The Particularized Facts Required To Excuse Demand ......................................................................................................... 11 1. Delaware’s Tests For Determining If Demand Is Excused: Aronson And Rales....................................................................................................... 11 2. The Date Upon Which The Need For Demand Is Measured......................... 14 3. Plaintiff Has Not Alleged Disinterestedness Or Lack Of Independence In The Manner Required By Aronson And Rales.......................................... 15 4. Plaintiff Has Not Alleged Conduct That Overcomes The Presumption Of The Business Judgment Rule In The Manner Required By Aronson Or That Demonstrates A Substantial Likelihood Of Liability In The Manner Required By Rales............................................................................ 22 a. Oversight Claims ............................................................................... 22 (1) The Caremark And Citigroup Standard ................................. 22 (2) The Supposed “Red Flags” .................................................... 30 (a) 2004 And 2005 Non-Subprime “Accounting Scandals” Conduct..................................................... 31 (b) 2005/2006 Determination To Stop Writing New Subprime CDSs.......................................................... 32 (c) 2007 Losses Reported By Other Firms...................... 33 (d) Counterparty Collateral Calls .................................... 34 (e) St. Denis Warnings .................................................... 35 (f) PricewaterhouseCoopers Warnings ........................... 36 i TABLE OF CONTENTS (continued) Page (g) OTS Warnings ........................................................... 38 (h) New York Insurance Department Warnings.............. 39 b. Disclosure Claims .............................................................................. 39 c. Stock Repurchase Claims .................................................................. 42 d. Compensation And Severance Claims............................................... 47 e. The Dividend Claim........................................................................... 51 f. The Unjust Enrichment And Contribution Claims ............................ 52 5. Plaintiff’s Remaining Boilerplate Allegations Do Not Excuse Demand....... 52 CONCLUSION...................................................................................................................... 55 ii TABLE OF AUTHORITIES Cases: Page(s): Acito v. IMCERA Group, Inc., 47 F.3d 47 (2d Cir. 1995)............................................................46 In re Allied Capital Corp. Sec. Litig., 2003 WL 1964184 (S.D.N.Y. Apr. 25, 2003)...................35 Aronson v. Lewis, 473 A.2d 805 (Del. 1984)................................10, 11, 12, 13, 14, 16, 17, 22, 52 Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009)......................................................................................43 ATSI Commc’ns Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) ......................................3, 4 Beam v. Stewart, 845 A.2d 1040 (Del. 2004)..............................................................11, 12, 16, 55 Blasband v. Rales, 971 F.2d 1034 (3d Cir. 1992)..........................................................................53 Braddock v. Zimmerman, 906 A.2d 776 (Del. 2006)....................................................................14 Brehm v. Eisner, 746 A.2d 244 (Del. 2000) ..........................................................11, 46, 47, 50, 52 In re Bristol-Myers Squibb Derivative Litig., 2007 WL 959081 (S.D.N.Y. Mar. 30, 2007), aff’d sub nom. Bellikoff v. PricewaterhouseCoopers, LLP, 300 F. App’x 41 (2d Cir. 2008)......................................................................................................................55 Campbell v. Potash Corp., 238 F.3d 792 (6th Cir. 2001) ..............................................................50 In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996)...................1, 23, 24, 33 Caruana v. Saligman, 1990 WL 212304 (Del. Ch. Dec. 21, 1990) ...............................................55 Chill v. Gen. Elec. Co., 101 F.3d 263 (2d Cir. 1996) ....................................................................46 In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106 (Del. Ch. 2009) ............. 1, 3, 11-13, 22-28, 30-34, 40, 41, 46-48, 50, 54 In re Citigroup Inc. S’holders Litig., 2003 WL 21384599 (Del. Ch. June 5, 2003), aff’d mem. sub nom. Rabinovitz v. Shapiro, 839 A.2d 666 (Del. 2003).................................29 In re Coca-Cola Enters., Inc. Derivative Litig., 478 F. Supp. 2d 1369 (N.D. Ga. 2007), aff’d sub nom. Staehr v. Alm, 269 F. App’x 888 (11th Cir. 2008) ..............................13 David B. Shaev Profit Sharing Account v. Armstrong, 2006 WL 391931 (Del. Ch. Feb. 13, 2006), aff’d mem., 911 A.2d 802 (Del. 2006) .....................................................24, 29 iii TABLE OF AUTHORITIES (continued) Page(s) Desimone v. Barrows, 924 A.2d 908 (Del. Ch. 2007).............................................................11, 28 ECA & Local 134 IBEW Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009)...............................................................................................................43, 44, 46 In re E.F. Hutton Banking Practices Litig., 634 F. Supp. 265 (S.D.N.Y. 1986)............................16 Elfenbein v. Gulf & W. Indus., Inc., 590 F.2d 445 (2d Cir. 1978)................................................53 Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)........................................................................44 In re Fed. Nat’l Mortgage Ass’n Sec., Derivative & “ERISA” Litig., 503 F. Supp. 2d 9 (D.D.C. 2007), aff’d sub nom. Pirelli Armstrong Tire Corp. Retiree Med. Benefits Trust v. Raines, 534 F.3d 779, 794 (D.C. Cir. 2008) ................................................20 Ferre v. McGrath, 2007 WL 1180650 (S.D.N.Y. Feb. 16, 2007)................................14, 30, 52, 55 In re Ferro Corp. Derivative Litig., 511 F.3d 611 (6th Cir. 2008).............................................2, 41 Fink v. Komansky, 2004 WL 2813166 (S.D.N.Y. Dec. 8, 2004)............................................14, 27 Fink v. Weill, 2005 WL 2298224 (S.D.N.Y. Sept. 19, 2005) ...............................................2, 3, 29 In re Forest Labs., Inc. Derivative Litig., 450 F. Supp. 2d 379 (S.D.N.Y. 2006)................5, 29, 41 Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt., LLC, 479 F. Supp. 2d 349 (S.D.N.Y. 2007).......................................................................................................................35 Gabelli & Co. v. Liggett Group Inc., 479 A.2d 276 (Del. 1984)...................................................51 In re Gen. Motors Class H S’holders Litig., 734 A.2d 611 (Del. Ch. 1999) .................................17 In re Gen. Motors (Hughes) S’holder Litig., 2005 WL 1089021 (Del. Ch. May 4, 2005), aff’d, 897 A.2d 162 (Del. 2006) ...................................................................................17 In re Goldman Sachs Mut. Funds Fee Litig., 2006 WL 126772 (S.D.N.Y. Jan. 17, 2006) ..................................................................................................................................17, 20 Goldstein v. Pataki, 516 F.3d 50 (2d Cir.), cert. denied, 128 S. Ct. 2964 (2008)..........................43 Grimes v. Donald, 1995 WL 54441 (Del. Ch. Jan. 11, 1995), aff’d, 673 A.2d 1207 (Del. 1996) ...........................................................................................................................2,