Judge Rules Jury to Hear Claims in Starr-AIG Battle

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A jury should hear the claims in litigation between American International Group Inc. and Starr International Co. Inc. controlled by the troubled insurance giant’s former chief executive, Maurice “Hank” Greenberg, a U.S. judge ruled Thursday.

U.S. District Court Judge Jed Rakoff said the trial would go ahead as scheduled on June 15 in Manhattan federal court after a disagreement between the parties over whether some claims should be heard by a jury or the judge alone.

“All of the claims will initially be tried to a jury, but the jury will effectively be rendering only an advisory verdict as to certain of the claims,” Rakoff said in his written decision.

The court battle is one of numerous lawsuits outstanding between the company that was bailed out by the U.S. government in the financial crisis and Greenberg, or companies he controls.

AIG had asked the judge to exclude evidence about its controversial bonuses for employees, which drew public ire this year as the company stumbled, a point Starr International raised in its response to the judge’s decision.

“Most of AIG’s claims against Starr International were dismissed on June 23, 2008, and Starr International prevailed on all of its claims against AIG in March 2009,” a Starr spokeswoman said in a statement by e-mail.” As to its remaining claims, AIG will face an uphill battle explaining to a jury why it believes that additional bonus compensation for AIG’s top executives is appropriate at this time.”

A spokesman for AIG said the company was pleased with the decision.

“AIG looks forward to a full hearing of the evidence at the public trial,” AIG spokesman Mark Herr said in an e-mailed statement.

Starr originally sued AIG in 2005 to reclaim items that remained behind when Greenberg left the company, such as a collection of valuable paintings, including one by Vincent Van Gogh.

AIG counter-sued, claiming the stock held by Starr was intended to fund deferred compensation for AIG employees.

AIG, which was bailed out by the U.S. government last year after it nearly collapsed due to bad mortgage bets, is seeking the return of the AIG stock still held by Starr, as well as the proceeds from sales of AIG stock in the intervening years.

Starr held about 290 million shares of AIG when Greenberg left the firm in 2005. It has sold about 80 million shares since, according to Reuters Data.

Starr International has held a sizable stake in AIG since 1970, when Greenberg structured the firm as a vehicle to both protect the insurer from a hostile takeover and fund incentive compensation for AIG’s best-performing employees.

The case is Starr International Company Inc. v American International Group Inc. 05-6283 in U.S. District Court for the Southern District of New York (Manhattan)

(Reporting by Grant McCool; Additional reporting by Lilla Zuill; Editing by Andre Grenon, Richard Chang))