Appleton Acquisitions, LLC v. National Housing Partnership, 10 N.Y.3d 250 (2008)
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Under New York Partnership Law § 121-1102(d), a limited partner’s exclusive remedy for challenging the validity of a merger is an appraisal proceeding to determine the fair value of their interest, except for actions alleging non-compliance with the partnership agreement or statutory notice provisions.
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Summary
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This case addresses whether a limited partner can bring an action for rescission or damages based on fraud or illegality related to a merger, or whether the exclusive remedy is a statutory appraisal proceeding. The Court of Appeals held that Partnership Law § 121-1102(d) provides that appraisal is the exclusive remedy for challenging the validity of a merger, except for claims regarding compliance with the partnership agreement or statutory notice provisions. This exclusivity applies even when the challenge is premised on allegations of fraud or illegality. The court reasoned that the legislature’s omission of a fraud exception, present in the Business Corporation Law, was intentional.
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Facts
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Beautiful Village Associates Redevelopment Company was a limited partnership managing residential real estate. National Housing Partnership (NHP) was the general partner. Beautiful Village purchased an apartment complex and enrolled it in HUD’s Section 8 program. In 2001, Beautiful Village obtained a line of credit from AIMCO Properties, which owned NHP. Unable to meet its payments, Beautiful Village owed AIMCO Properties over $1.5 million by 2002. Instead of foreclosure, NHP proposed a merger with a new limited partnership owned by AIMCO Properties, offering limited partners $100 or 2.5 common units of AIMCO Properties for their shares. A proxy statement disclosed the conflict of interest and the right to a judicial appraisal. The merger was approved, and the limited partners’ interests were extinguished. Appleton Acquisitions, LLC, acquired the former limited partners’ shares and legal claims, then initiated this action alleging fraud, breach of fiduciary duty, and negligent misrepresentation.
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Procedural History
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Appleton Acquisitions sued NHP, AIMCO Properties, and AIMCO, seeking rescission of the merger and damages. The defendants moved to dismiss, arguing that the exclusive remedy was an appraisal proceeding. Supreme Court denied the motion. The Appellate Division reversed, holding that Partnership Law § 121-1102(d) barred any action outside of an appraisal proceeding. The New York Court of Appeals granted leave to appeal.
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Issue(s)
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Whether Partnership Law § 121-1102(d) bars a limited partner from bringing an action for rescission or money damages based on allegations of fraud or illegality in connection with a merger, where the limited partner did not pursue a statutory appraisal proceeding.
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Holding
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Yes, because Partnership Law § 121-1102(d) provides that a limited partner’s exclusive remedy for challenging the validity of a merger is an appraisal proceeding, except for actions alleging non-compliance with the partnership agreement or statutory notice provisions, and the legislature intentionally omitted a fraud exception that is present in the Business Corporation Law.
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Court’s Reasoning
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The Court relied on the plain language of Partnership Law § 121-1102(d), which states that a limited partner