The effective date of the Trust Agreement between the Federal Government, i.e., the Federal Reserve Bank of New York ("FRBNY"), on behalf of the Federal Taxpayers bailing out AIG, and the three persons who agreed to serve as Trustees, is January 16, 2009. Nominally composed during the previous administration, this Trust instrument may soon be placed on stage during, rather than by, the current administration. AIG is scheduled to hold its annual shareholders meeting in May and the Federal Taxpayers own nearly 80 percent of the shares. Here is the Trust instrument: Download .FRBNY and Jill Considine, Chester Feldberg and Douglas Foshee.0109.
The Trustees' Fiduciary Duties according to the Trust Agreement are owed "solely" to the United States Treasury. This has been interpreted by the President of the FRBNY to mean that the Trustees "have a legally binding obligation to exercise all their rights as majority owner of AIG in the best interest of the U.S. taxpayer." Mr. William Dudley, President of the FRBNY, testifying to the U.S. Congress on March 24, 2009, quoted by Hugh Son, "AIG Trustees Emerge From 'Shadow' as Directors Resign (Update 2)" (Bloomberg.com, Tuesday, April 7, 2009).
The three Trustees' Fiduciary Duties are in two parts in this instrument. "AIG Credit Facility Trust Agreement," § 3.03(a)(i) and (ii), on page 12 of the attached Trust Agreement.
First, there is a mixture of usual and unusual language. The Trustees' first obligation is to act in Good Faith, which is usual for a Fiduciary, "and in or not opposed to the best interests of the Treasury". [Emphasis added.] The meaning of the emphasized language, which is unusual at its best, remains to be determined.
Second, the three Trustees are charged with a Fiduciary Duty to act with "no reasonable cause to believe his or her conduct was unlawful." This language invites interpretation on a case-by-case basis.
When the three Trustees act, or fail to act, pursuant to these announced duties, then the Trust Agreement purports to immunize them from "liability," although it does not identify the kind of "liability" for which they might otherwise be liable if they were not immunized. See id., § 3.05(d), page 16.
Further, the Trust Agreement purports to provide the three Trustees with an absolute "advice of counsel" defense, so long as the Trust Attorney is hired pursuant to the Two Fiduciary Duties called "the Applicable Standard of Care" in this Trust Agreement. Id., § 3.03 (b), page 12.
Any ambiguity in the minds of the three Trustees is also going to be resolved in a special way under this Trust Agreement. The three Trustees are not explicitily authorized to resolve ambiguities by asking a Court for Declaratory Relief to tell them what it is lawful to do, an action which Trustees are usually authorized to take. Instead, they are to ask the FRBNY for "written instructions" which the three Trustees will be duty-bound to obey. Id., § 3.05(g), pages 16-17.
A parallel post on "Insurance Claims and Bad Faith Law Blog" explores other aspects of the "AIG Credit Facility Trust Agreement," and the identity of the three Trustees and their Trust Attorney, at www.insuranceclaimsbadfaith.typepad.com.
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