American International Group’s (AIG) decision last week not to sue the US Government over the federal bailout of the company in September 2008 could actually help the lawsuit initially filed by former AIG CEO Hank Greenberg’s company, Starr International.That’s the view of prominent Wall Street attorney Stephen Plotnick.Starr International filed a $25 billion lawsuit against the US Government in 2011, accusing it of using the bailout of AIG to channel funds to AIG’s trading partners, calling the move a seizure that violated the Fifth Amendment of the US Constitution, which prohibits the taking of private property for “public use, without just compensation”.While AIG faced extensive criticism for talking about joining the lawsuit, Mr Plotnick, a partner with Carter Ledyard & Milburn, told BestWire that AIG’s board had a duty to consider and answer Starr’s demand.“You read all this outrage that came out that AIG was even considering this, but all the outrage appears to come from people who don’t know what they are talking about when it comes to derivative litigation,” Mr Plotnick said. “It sets up a pretty decent argument that AIG was not able to make a valid business decision because they were too influenced by these outsiders and the threats they made.”Starr, which was a major AIG shareholder and is headed by the company’s founder, Hank Greenberg, claims the government unlawfully took over AIG then covertly funnelled billions of dollars from it to other financial institutions that were AIG clients, destroying the value of the company’s stock, according to the lawsuit filed November 21, 2011 in US Court of Federal Claims in Washington, DC.Starr held about 562.9 million AIG shares when AIG was taken over. The amount of money Starr is seeking stems from market value of Starr’s shares on January 14, 2011, the date on which the government received the shares, according to court records. As of January 2011, Starr held 13.9 million shares, according to an AIG spokesman.Starr filed a related shareholder lawsuit on the same day in US District Court in Manhattan, claiming the Federal Reserve Bank of New York and AIG forced directors and officers to violate their duties to Starr International and AIG.David Boies, Starr International’s lead attorney in the lawsuits, said the firm’s takeover was an abuse of authority similar to firefighters seizing possessions they rescued from a flood.“The fire and rescue people say we’re going to cart them out, we’re going to protect them, but we’re going to take 80 percent of them for the firehouse,” Mr Boies said in an interview last week on CNBC. “Everybody would know that was wrong. It’s also illegal.”While the New York suit was dismissed, and Starr is appealing that ruling, the judge in the US Court of Federal Claims case refused to toss out the case.“There are limits to what the government can demand in return for” rescue loans, Mr Boies said. “What it cannot demand, as a court in Washington, DC has already ruled, is that the company give up its equity.”Derivative lawsuits “are very process-orientated”, Mr Plotnick told BestWire. The AIG board was required to consider suing the fed, he said.But several members of Congress and former regulators were outspoken at news that AIG might sue the federal government.“Taxpayers across this country saved AIG from ruin, and it would be outrageous for this company to turn around and sue the federal government because they think the deal wasn’t generous enough,” Sen Elizabeth Warren said in a statement.Former US Secretary of Labor Robert Reich tweeted: “We should countersue [AIG] for stupidity.”Those kinds of comments may help Starr build its case, Mr Plotnick said.“The government, who is being sued, is putting all this pressure on AIG; in effect, they are putting a taint on what was an eminently reasonable process that AIG put in place to consider Starr’s demand,” Mr Plotnick said. “These people are potentially infecting the process, and could colour the appearance of the independence of the decision.”The theme of the lawsuit is AIG was pressured into agreeing to unfair bailout terms to the detriment of it shareholders, Plotnick said. Now Starr can argue that AIG “was bowing to the pressure by the wrongdoers themselves, the government,” he said.The case could take years to be resolved, but one major issue that will be debated is whether shareholders would have fared better or worse if AIG had declared bankruptcy instead of agreeing to the federal bailout, Plotnick said.“That is something that will be fleshed out,” he said.