Ask any first year law student “what did you learn in school today” and you’ll probably get some version of the answer: “duty-breach-causation-harm.” While this applies specifically to tort claims, it seems axiomatic, even for non-lawyers, that you can’t sue someone who hasn’t hurt you. Or can you?
Former AIG CEO Hank Greenberg caused a ripple of shock in late 2011 when he filed suit against the U.S. government, alleging that the government’s 2008 bailout and subsequent take-over of AIG was unlawful, and claiming $40 billion in damages. Despite skepticism throughout the legal community, the case not only survived dismissal, but went on to a full trial, during which such heavyweights as Tim Geithner, Hank Paulson, and Ben Bernanke took the stand.
Throughout the trial, Judge Thomas Wheeler seemed sympathetic to the claims that Greenberg brought on behalf of Starr International Company, an AIG shareholder. Few believed that AIG had any alternative to the government’s money, except bankruptcy. In bankruptcy, shareholders (like Starr) are paid last out of whatever remains after all the company’s debts are paid. Which typically (and most likely in AIG’s case) means not paid at all. Would the judge really grant Starr a $40 billion judgment – against the U.S. government – when the alternative was bankruptcy?
No. But that doesn’t mean the government got off scot free either. Judge Wheeler found that the federal government committed an illegal exaction. That is, it took something it had no right to take. (This, the judge carefully notes, is not the same as a “takings” under the Fifth Amendment. When there is a takings, the government lawfully uses its authority to take private property for public use and then must pay the owner “just compensation” for that property. An illegal exaction means the government took properly unlawfully.)