By Jonathan Stempel

(Reuters) – New York’s highest court allowed the state to pursue a lawsuit that accused First American Corp and its eAppraiseIT unit of colluding with the former Washington Mutual Inc to fraudulently inflate home values.

The Court of Appeals on Tuesday said federal law did not preclude New York State Attorney General Eric Schneiderman from pursuing claims alleging fraud and violations of rules meant to ensure independent real estate appraisals. It upheld a June 2010 ruling by an intermediate state appeals court.

The eAppraiseIT unit is now part of CoreLogic Inc, which was created when First American split last year into that company and First American Financial Corp.

Andrew Cuomo, Schneiderman’s predecessor and now New York’s governor, accused First American and eAppraiseIT in a November 2007 lawsuit of caving to pressure from Washington Mutual to use appraisers who provided inflated appraisals, to win more business.

Lenders that use inflated appraisals can sometimes make larger loans, including to borrowers who cannot afford them, and as a result collect higher fees.

First American and eAppraiseIT argued that only federal law applied to the appraisals, and that state regulators had improperly impeded Washington Mutual, the largest U.S. savings and loan prior to its 2008 failure, from funding home loans.

Nov 21 (Reuters) – A company run by former American International Group Inc Chief Executive Maurice “Hank” Greenberg sued the U.S. government for $25 billion, calling the 2008 federal takeover of the insurer unconstitutional.

The lawsuit marks an unusual effort to force the government to pay shareholders, who have seen AIG’s stock price tumble 98 percent since the middle of 2007, when the insurer’s risky bets on mortgage debt through credit default swaps began to falter.

Greenberg’s company, Starr International Co, also filed a lawsuit against the Federal Reserve Bank of New York, whose president at the time of the takeover was Timothy Geithner, now U.S. Treasury Secretary.

Once AIG’s largest shareholder, Starr said the government took a roughly 80 percent stake in AIG and charged an “punitive” 14.5 percent on federal loans without seeking a shareholder vote, hoping to provide a “backdoor bailout” for AIG trading partners such as Goldman Sachs Group Inc .

It said the bailouts that began on Sept. 16, 2008, violated shareholders’ rights to due process and equal protection, and a Fifth Amendment ban against taking private property for public use without just compensation, known as the “takings clause.”

Greenberg, 86, had led AIG for nearly four decades prior to his 2005 ouster. Starr once owned 12 percent of AIG.

“The government’s actions were ostensibly designed to protect the United States economy and rescue the country’s financial system,” David Boies, a lawyer for Starr, said in the complaint.

By Jonathan Stempel

(Reuters) – A company run by former American International Group Inc Chief Executive Maurice “Hank” Greenberg on Monday filed a $25 billion lawsuit against the United States, claiming that the government takeover of the insurer was unconstitutional.

In its complaint, Greenberg’s Starr International Co said that in bailing out AIG and taking a nearly 80 percent stake, the government failed to compensate existing shareholders. It said this violated the Fifth Amendment, which bars the taking of private property for public use without just compensation.

“The government’s actions were ostensibly designed to protect the United States economy and rescue the country’s financial system,” Starr said. “Although this might be a laudable goal, as a matter of basic law, the ends could not and did not justify the unlawful means employed.”

The United States, it went on, “is not empowered to trample shareholder and property rights even in the midst of a financial emergency.”

Monday’s lawsuit was filed with the U.S. Court of Federal Claims in Washington, D.C., which handles lawsuits seeking money from the government.

The $25 billion estimate reflects what Starr called the value of the government’s stake on January 14, 2011, when it swapped AIG preferred stock for 562.9 million common shares.

Nov 18 (Reuters) – Seven banks that helped MF Global Holdings Ltd sell bonds were sued by pension funds who said the bonds’ offering prospectuses concealed problems that led to the futures brokerage’s collapse.

The lawsuit was filed Friday afternoon in Manhattan federal court against units of Bank of America Corp , Citigroup Inc , Deutsche Bank AG , Goldman Sachs Group Inc , Jefferies Group Inc , JPMorgan Chase & Co and Royal Bank of Scotland Group Plc .

Other defendants include several officials associated with MF Global, including former Chief Executive Jon Corzine.

Friday’s lawsuit may be one of the earliest efforts for investors to recover money from relatively deep-pocketed defendants that they believe may share in responsibility for MF Global’s Oct. 31 bankruptcy.

Bank of America spokeswoman Shirley Norton, Citigroup spokeswoman Danielle Romero-Apsilos and Jefferies spokesman Richard Khaleel declined to comment. The remaining banks did not immediately respond to requests for comment.

According to the complaint, the registration statements and prospectuses for about $900 million of MF Global note offerings this year omitted how the company was using high leverage, investing heavily in risky European sovereign debt, and not properly segregating client assets from its own.

It said the seven banks helped draft the offering documents and sell the notes, collecting $21.2 million of fees, but that their “failure to conduct an adequate due diligence investigation was a substantial factor” in MF Global’s collapse, as well as in defaults on the notes.

Nov 18 (Reuters) – The Dallas Stars hockey team won court approval of its bankruptcy reorganization, clearing the way for the team to be sold for $265 million to Vancouver businessman Tom Gaglardi.

U.S. Bankruptcy Judge Peter Walsh approved the plan at a hearing on Friday, court records show.

No bidders offered to compete with Gaglardi for the team at a court-supervised auction. The National Hockey League has approved the sale. The team had filed for Chapter 11 protection from creditors on Sept. 15.

Gaglardi, 43, is president of Northland Properties Corp. The family business has properties that include Sandman Hotels, Inns & Suites; and more than 100 restaurants including Denny’s and Moxie’s. It also owns the Kamloops Blazers junior hockey team in British Columbia.

A formal announcement that Gaglardi has taken ownership will be made on Monday, said Jim Rossiter, a partner at Baker & McKenzie which represents him.

“Tom is the real deal,” Rossiter said in an interview. “You have an owner who is engaged (and) loves the game, and he is in the hospitality business. He has roots in Texas, and he will not move the team. Dallas is a wonderful market and Tom is the right owner.”

Hicks Sports Group, led by private equity executive Tom Hicks, had owned the Stars, but lost control to his lenders after defaulting on $525 million of debt in 2009.

NEW YORK (Reuters) – The trustee liquidating MF Global Holdings Ltd’s (MFGLQ.PK: Quote, Profile, Research, Stock Buzz) broker-dealer unit won court permission to distribute $520 million of cash, providing relief to customers whose accounts have been frozen since the futures brokerage went bankrupt.

U.S. Bankruptcy Judge Martin Glenn approved the payout at a hearing on Thursday in Manhattan.

The payout is 60 percent of the $869 million that was frozen since October 31 across commodity customer accounts that contained only cash, the trustee James Giddens has said.

Still unclear is the whereabouts of about $600 million of customer funds that have been unaccounted for since MF Global’s Chapter 11 filing, and whether MF Global might have improperly mixed customer funds with its own.

Glenn turned aside objections by some customers who faulted the trustee for not distributing more, and others who complained that they were ineligible to join in the payout.

Nothing in the law “requires that all customers receive similar rates of distributions at the same time,” he said.

Kent Jarrell, a spokesman for the trustee, said after the hearing that about 23,300 customers will be entitled to share in the payout, which is expected to begin by November 21. “A few hundred” accounts would remain frozen, he said.

Nov 17 (Reuters) – Victims of Allen Stanford’s alleged $7.2 billion Ponzi scheme may soon have a chance to submit claims, though it remains unclear how much of their losses they might ultimately recover.

Ralph Janvey, the court-appointed receiver for Stanford’s firm, asked a federal judge in Houston for permission to set up a claims process, more than 2-1/2 years after the financier’s arrest, a Wednesday court filing shows.

Approval of the request could pave the way for investors to recover at least some of their losses from Stanford’s alleged fraud, a sum believed to be $2 billion or more.

Stanford, 61, faces 14 criminal charges and U.S. Securities and Exchange Commission civil charges over allegations he deceived investors who bought fake certificates of deposit from his Antiguan bank, Stanford International Bank Ltd.

His February 2009 arrest came two months after Bernard Madoff’s Ponzi scheme was uncovered.

Wednesday’s filing is “a major step” toward returning money to victims, Kevin Sadler, a partner at Baker Botts representing Janvey, said in an email.

Though a court-appointed examiner and a committee of Stanford investors expressed disagreements over parts of the process at an Oct. 13 court conference, “the court made clear at the status conference that the process should begin, and the receiver has acted accordingly,” he added.

By Jonathan Stempel

(Reuters) – Southwest Airlines Co was sued by an Illinois man over the discount carrier’s decision to stop honoring coupons for free alcoholic drinks, which it had given to select travelers and which lacked expiration dates.

The plaintiff Adam Levitt said Southwest had for years awarded customers like him, who bought tickets through its premium-priced “Business Select” program, hundreds of thousands of coupons for the drinks, which would otherwise cost $5 each.

But on August 1, 2010, Southwest changed its policy, and said Business Select passengers may use their coupons only on the day of travel printed on them. Some other passengers were given more time.

“In an industry where the competition is always knocking (or banging) on the door and where watching the bottom-line is more important than ever, we owe it to our employees, customers, and shareholders to find ways to operate smarter,” Mike Hafner, vice president of cabin services, wrote on a company blog.

Levitt, who lives in the Chicago area, said the policy change amounted to a breach of contract. He attached to his complaint copies of 45 coupons for free drinks, which he said he had accumulated and which the change left worthless.

“Southwest decided that it would make more money — improve its ‘bottom-line’ — by choosing not to honor the coupons that consumers had already paid and bargained for,” said the complaint filed on Wednesday in Chicago federal court.

By Jonathan Stempel

(Reuters) – A federal judge rejected a request by former Northwest Airlines Corp flight attendants to raise their compensation to that of Delta Air Lines Inc (DAL.N: Quote, Profile, Research, Stock Buzz) colleagues who worked at that carrier before the companies’ merger.

While rejecting Delta’s bid to dismiss the case, U.S. District Judge Patrick Schlitz in Minneapolis said the former Northwest flight attendants were unlikely to ultimately prevail on their claims for equal pay and benefits. He denied their request for a temporary order to align their compensation.

Robert Clayman, a lawyer for the former Northwest flight attendants, did not immediately return a call seeking comment. Delta spokeswoman Gina Laughlin said the carrier is pleased the court did not issue a preliminary injunction.

The lawsuit filed on March 2 accused Delta of withholding profit-sharing checks from more than 7,500 former Northwest flight attendants, giving them less than half the amount paid to their pre-merger Delta colleagues.

It followed a February 14 announcement by Delta Chief Executive Richard Anderson, who once held the same job at Northwest, of a $313 million profit-sharing award.

Before the carriers merged in October 2008, Northwest flight attendants were unionized, while Delta flight attendants were not and were paid more.

Nov 15 (Reuters) – A federal judge reversed a U.S. agency decision to suspend Allied Home Mortgage Corp, one of the nation’s largest privately-held mortgage brokers, from making home loans insured by the Federal Housing Authority.

Tuesday’s decision by U.S. District Judge Melinda Harmon came after the government on Nov. 1 sued Allied, founder Jim Hodge and compliance director Jeanne Stell over an alleged decade-long fraud that cost taxpayers $834 million in insurance claims and forced thousands of borrowers out of their homes.

The U.S. Department of Housing and Urban Development suspended Allied’s FHA lending privileges the same day. That prompted the Houston-based company to file a lawsuit, saying a suspension would essentially put it out of business.

In her decision, Harmon said that halting the suspension while the government lawsuit was still pending would preserve more than 700 Allied Home jobs, and allow low-income borrowers already approved for mortgages to complete their home purchases.

“The potential destruction of plaintiffs’ business outweighs any harm that would be suffered by the government before the issues can be litigated,” wrote the judge, who sits in Houston.

The office of U.S. Attorney Kenneth Magidson in Houston did not immediately respond to requests for comment.

The government lawsuit accused Allied of violating the federal False Claims Act by misleading the government into believing its loans qualified for federal insurance.