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• BUSINESS LAW Appraisal proceeding is limited partners’ remedy Under the state of New York’s partnership law, a limited partner who objects to a merger on the ground of the general partner’s fraudulent or illegal acts must do so in an appraisal proceeding, the New York Court of Appeals ruled on March 18. Appleton Acquisition LLC v. The National Housing Partnership, No. 36. The National Housing Partnership, the sole general partner of the Beautiful Village Associates Redevelopment Co., sold limited partnerships to 26 individuals before buying a New York City apartment building. Years later, National Housing and its parent company, AIMCO Properties L.P., proposed that Beautiful Village be merged with a new limited partnership owned by AIMCO. In proxy statements, National Housing told the limited partners that, if the merger were not approved, AIMCO would likely foreclose on the property, resulting in adverse tax consequences for them. Despite being made aware of their right to an appraisal proceeding to determine the fair market value of their partnership interests, none of the limited partners exercised the right, and the merger was approved. Appleton Acquisitions LLC bought the equitable shares of many of the former limited partners, then sued National Housing and AIMCO for rescission of the merger and damages for fraud, breach of fiduciary duty and negligent misrepresentation. The trial court rejected National Housing’s motion to dismiss, but an intermediate appellate court reversed, ruling that the exclusive remedy of limited partners is an appraisal proceeding. The New York Court of Appeals, the state’s highest court, affirmed, refusing to adopt a common law exception to the appraisal proceeding requirement for fraud or illegality. New York’s partnership law recognizes that limited partners are entitled to be compensated for the fair value of their partnership interests. General partners may be held accountable for their fraudulent, deceptive or illegal acts through an appraisal proceeding, not through a civil action that seeks to set aside or otherwise attack a merger. Full text of the decision • CIVIL PRACTICE Lender that offers some services for fee isn’t liable A judge wrongly granted class action status to plaintiffs who alleged that a mortgage lender violated the Real Estate Settlement Procedures Act in charging escrow waiver fees, the 11th U.S. Circuit Court of Appeals held on March 20. Friedman v. Market Street Mortgage Corp., No. 05-13820. Edward and Lori Friedman refinanced their home mortgage with Market Street Mortgage Corp. The lender generally required borrowers to make monthly payments into escrow for taxes and insurance, but allowed borrowers to waive the escrow account, pay the taxes and insurance themselves and pay a one-time fee. The Friedmans received a nonescrowed loan and were charged an escrow waiver fee. They sued Market Street, alleging that the lender performed no services in exchange for the escrow-waiver fee, which violated the Real Estate Settlement Procedures Act 12 U.S.C. 2607(b)8(b). According to that provision, no person shall give or accept any percentage of any charge made or received for the rendering of a real estate settlement service, involving a federally related mortgage loan, other than for services actually performed. The plaintiffs sought class certification, which a Florida federal trial judge granted. Reversing, the 11th Circuit said that, contrary to the plaintiffs’ claims, some services were provided, such as the monitoring of tax and insurance payments. The court said that 12 U.S.C. 2607(b)8(b) does not govern excessive fees because it is not a price-control provision. The provision prohibits lenders from charging fees for no services. The law does not authorize courts to examine a charge and determine whether it is reasonable or unreasonable, the court said. Because the law “requires a plaintiff to allege that no services were rendered in exchange for a settlement fee, the Friedmans could not amend their complaint in any fashion that could state a cause of action under subsection 8(b).” • CRIMINAL PRACTICE Downward departure denial is not reviewable Although a crack cocaine defendant would have been eligible for a downward departure on his sentence on the ground of diminished mental capacity, a trial court’s refusal to grant the departure is not reviewable because the trial court understood that it had the authority to grant it but declined to do so, the 4th U.S. Circuit Court of Appeals held on Mar. 20. U.S. v. Brewer, No. 06-4836. Arthur Brewer suffered from anhidrotic ectodermal dysplasia, a rare genetic condition that resulted in his having no teeth, hair, eyebrows or sweat glands and caused him to have high fevers, as a result of which Brewer became mentally retarded. Over the years, Brewer had been convicted of multiple drug offenses as well as second-degree murder. After selling crack cocaine to undercover agents, Brewer was convicted of distributing more than five grams of cocaine base in violation of 21 U.S.C. 841(a)(1). Brewer sought a downward departure on his sentence based on diminished capacity pursuant to Section 5K2.13 of the Federal Sentencing Guidelines. A Virginia federal trial court refused to grant it, ruling that, although Brewer was eligible for downward departure under Section 5K2.13 due to his “significantly reduced mental capacity,” such a departure would be inappropriate under the section’s additional provision proscribing departures if a defendant’s criminal history indicated a need for incarceration “to protect the public.” Affirming, the 4th Circuit held that it could not review the trial court’s refusal to grant the downward departure because the court had understood it had the authority to grant the departure, but refused to do so. This legal principle, the court said, “has been well settled for some time, and was not disturbed by the Supreme Court’s decision in United States v. Booker, 543 U.S. 220 (2005) . . . .Because the sentencing court understood its authority, but declined to exercise it on the facts of this case, we are unable to review its decision.” • ELECTION LAW Plaintiff can’t challenge DNC on Fla. delegates A Florida democrat lacks standing to challenge the Democratic Party’s national and state organizations’ decision not to seat Florida delegates at the party’s convention to nominate its presidential candidate, the 11th U.S. Circuit Court of Appeals held on March 21. DiMaio v. Democratic National Committee, No. 07-14816. On Aug. 30, 2007, Victor DiMaio brought a declaratory judgment action in a Florida federal court against the Democratic National Committee and the Florida Democratic Party (FDP) alleging that the DNC’s refusal to seat Florida’s Democratic delegation at the party’s national convention would violate his right to equal protection under the 14th Amendment to the U.S. Constitution. The court dismissed the action, ruling that DiMaio lacked standing because “[h]is complaint does not assert any actual or real controversy with the DNC or the FDP.” The court also held that, even if DiMaio could show standing, he still was unable to state a claim because political parties have a constitutionally protected right to manage their own internal affairs. Affirming, the 11th Circuit said that the complaint failed the test for constitutional standing. The DNC had decided not to allow Florida to seat delegates at the national convention because the state violated party rules by moving its primary to an earlier date. But the plaintiff had never alleged that he voted in the primary or that he intended to vote in the primary. The complaint only said the DNC “may be violating” his rights. DiMaio was unable to plead an injury or invasion of a legally protected interest. “DiMaio’s right to vote, protected by the Fourteenth Amendment, cannot be impaired by the DNC’s failure to consider a ballot that he did not cast in the first place,” the court said. • EVIDENCE Extension of traffic stop detention unwarranted A trial court should have suppressed evidence obtained through the lengthy detention of a Mexican national, who was held because police mistakenly believed he could not drive in the state of Tennessee with a Mexican driver’s license, the 6th U.S. Circuit Court of Appeals ruled on March 20. U.S. v. Urrieta, No. 07-5431. Tennessee police officers pulled over a car driven by Jose Eduardo Urrieta that was towing another car on the ground that it lacked a valid registration sticker. Urrieta produced papers showing his car was registered to his girlfriend, a passenger, and that the towed car was registered to him. Urrieta also produced a Mexican driver’s license, but an officer ordered Urrieta to produce his passport, mistakenly believing that Urrieta couldn’t drive legally in Tennessee without both. The officer also sought to determine whether Urrieta was in the country legally. The officer questioned the pair about their immigration status, criminal history and travel plans. Eventually, he obtained Urrieta’s written consent to search both cars. The officers found firearms, several fraudulent identifications and Urrieta’s passport. A Tennessee federal court rejected Urrieta’s motion to suppress and convicted him of being an alien in possession of a firearm. The 6th Circuit reversed. The officer detained Urrieta beyond the scope of the traffic stop in the mistaken belief that Urrieta could not drive legally in the state without a license and a passport. The officer’s authority to detain Urrieta ended once he issued the traffic citation and received word that Urrieta had not been deported before. Having a Mexican driver’s license does not justify the suspicion that he was transporting drugs. • INSURANCE LAW Policy may be rescinded if facts aren’t disclosed The maritime doctrine of uberrimae fidei � namely, that insurance contracts are subject to “utmost good faith” � applies regardless of whether a clause in an insurance contract could be interpreted as limiting policy rescission to instances of material misrepresentation, the 9th U.S. Circuit Court of Appeals ruled on March 20 in a case of first impression. New Hampshire Ins. Co. v. C’Est Moi Inc., No. 06-55031. In 1992, a yacht owned by C’Est Moi Inc. was destroyed by fire. C’Est Moi’s insurer, Washington International Insurance Co., paid C’Est Moi $450,000 to settle the claim. C’Est Moi’s sole shareholder reacquired the yacht from Washington International at salvage and began restoring it. The boat was uninsured for about nine years before C’Est Moi obtained coverage from New Hampshire Insurance Co. In 2004, the yacht sank while docked. A New Hampshire Insurance investigation indicated the cause was a malfunctioning bilge pump. New Hampshire sued C’Est Moi in a California federal court, seeking to rescind the policy under the maritime doctrine of uberrimae fidei. New Hampshire alleged that C’Est Moi had made misrepresentations on the insurance application about the yacht’s purchase price and its insurance coverage status at the time the policy was issued. C’Est Moi countered that the misrepresentations were unintentional, and that, because the policy had a provision for rescission based on intentional misrepresentations, uberrimae fidei did not apply. The court granted summary judgment to New Hampshire. Affirming, the 9th Circuit held that uberrimae fidei applies regardless of the policy’s rescission provision. An insurer may rescind a policy if an insured fails to disclose every fact within his knowledge that is material, even if the misrepresentation isn’t intentional. Under uberrimae fidei, New Hampshire needs only to show that C’Est Moi’s misrepresentation was material. In this case, it clearly was, the court said. Had New Hampshire known that C’Est Moi’s yacht had been uninsured for nine years, it “would have affected [its] decision to insure.”

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