Kevin P. Fitzpatrick filed the lawsuit late Wednesday in New York state court. It seeks unspecified damages as well as future profits from AIG real-estate transactions.
An AIG spokesman said the company "disputes the allegations and will defend the suit vigorously."
The suit comes as AIG's compensation structure is under scrutiny because of the fall 2008 federal bailout of AIG after the firm was unable to cover billions of dollars in derivative bets. The compensation scrutiny is aimed at how much AIG can pay top executives under guidelines set by federal paymaster Kenneth Feinberg.
Mr. Fitzpatrick's claim is unrelated to Mr. Feinberg's review. Mr. Fitzpatrick alleges he was denied investment returns under a 2001 contract with AIG, according to the lawsuit.
Before AIG's near-collapse, AIG Global Real Estate under Mr. Fitzpatrick was a major player in real estate. Before leaving this year, he had been at the company for 22 years. The business unit, using insurance premiums and working with third-party investors, acquired property on its own or via developers. It amassed interests totaling more than $23 billion.
"They've always had a good reputation," says Dan Fasulo, managing director at Real Capital Analytics, a New York real-estate research firm.
Mr. Fitzpatrick's lawsuit centers on the allegation that AIG and the 55-year-old Mr. Fitzpatrick formed a series of enterprises to allow him and other employees of the group to invest alongside AIG in either separate funds or in direct purchases of properties. The ventures meant that AIG would then distribute a percentage of profits from those transactions to Mr. Fitzpatrick and other AIG global real-estate employees.
In October 2008, however, AIG ceased distributing the proceeds from the real-estate transactions to Mr. Fitzpatrick and other AIG global real-estate employees, the lawsuit says. That violates a 2001 contract, the lawsuit claims.
The funds that Mr. Fitzpatrick and AIG set up in Delaware and the Cayman Islands also highlight the complicated ways employees received compensation or returns at some of AIG's business units and the difficulty AIG may face as it seeks to untangle any other deals struck with executives.
"Mr. Fitzpatrick worked more than 20 years creating a real estate business and generating billions of dollars in profit for AIG," said Mr. Fitzpatrick's New York lawyer, Sean O'Shea. "Despite crystal clear contractual rights, AIG has attempted to seize his ownership interests."
After AIG refused to distribute the proceeds last October and he found himself sidelined at AIG, Mr. Fitzpatrick alleges, he resigned in March of this year, citing his contractual right to depart because of the violation of the 2001 contract and the fact that his job had diminished after AIG brought in consultants amid the government bailout.
Mr. Fitzpatrick agreed to remain for a short period to help with a transition. Then in May, however, AIG said it actually was firing Mr. Fitzpatrick because he had AIG real-estate documents at his home, the lawsuit says. In the lawsuit, Mr. Fitzpatrick says that AIG knew that he often worked from home.