Gray et al v. MERSCORP Inc et al

Filing 8

MEMORANDUM OPINION-re: Partial Motion to Dismiss 5 . Signed by Judge R David Proctor on 12/11/2013. (AVC)

FILED
2013 Dec-11 AM 09:31
U.S. DISTRICT COURT
N.D. OF ALABAMA

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
WESTERN DIVISION
CLAYBURN KYLE GRAY, et al.,
Plaintiffs,
v.
MERSCORP, INC., et al.,
Defendants.

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Case No.: 7:13-CV-01977-RDP

MEMORANDUM OPINION
This case is before the court on a Partial Motion to Dismiss (Doc. #5), filed by
Defendants MERSCORP Holdings, Inc. (“MERSCORP”), Mortgage Electronic Registration
Systems, Inc. (“MERS”), and OneWest Bank, FSB (“OneWest”) on November 1, 2013. The
Motion (Doc. #5) is due to be granted.
This matter arises out of a Note and Mortgage executed in March 2007 by Plaintiffs
Clayburn Kyle Gray and Carrie Ann Gray (“Plaintiffs”) (Borrowers/Mortgagors), Defendant
Quicken Loans, Inc. (“Quicken”) (Lender), and Defendant MERS (Nominee/Mortgagee). (Doc.
#1, Ex. 1 at ¶¶ 9-11). Plaintiffs’ resulting suit primarily consists of two allegations: (1) that
Defendant Quicken wrongfully and deceptively caused Plaintiffs’ entire ten-acre property to be
encompassed by the mortgage (where Plaintiffs intended for the loan to be secured by only a
portion of their property) (Doc. 1, Ex. 1 at ¶¶ 9-11, 19-22); and (2) that Defendant OneWest, to
whom the mortgage was subsequently assigned by Defendant MERS, is incapable of foreclosing
on the mortgaged property, due to “a separation of the note and mortgage in this cause.” (Doc. 1,
Ex. 1 at ¶¶ 30-33).

Originally initiated in the Circuit Court of Bibb County, Alabama on December 28, 2012,
the case was removed to the United States District Court for the Northern District of Alabama
upon Defendant Quicken’s filing of a Notice of Removal (Doc. #1) on October 25, 2013, an
action that was fully consented to by the other Defendants (Doc. #1, Ex. 5). On November 1,
2013, Defendants MERSCORP, MERS, and OneWest filed a Partial Motion to Dismiss (Doc.
#5), seeking dismissal of Count III of Plaintiffs’ Amended Complaint (Doc. #1, Ex. 1 at ¶¶ 2933). Couched as an action for “Failure of Ownership of Note and Mortgage,” Count III is rooted
in the so-called “split the note” theory, asserting that “[i]t is common sense of law that only the
owner of the note and mortgage as of the date the Complaint was filed is entitled to foreclose.”
(Doc. #1, Ex. 1 at ¶ 30). The theory (and its lack of acceptance under Alabama law) is the focus
of Defendants’ Motion, which consequently argues that Plaintiffs fail to state a claim in Count
III. (Doc. #5 at 3-6).
On November 5, 2013, the court issued a Show Cause Order (Doc. #7), asking Plaintiffs
to show cause “why Count III of their Complaint should not be dismissed due to its apparent
reliance on an unrecognized theory of law.” Plaintiffs have failed to respond to the court’s order
in any manner.
The court construes Plaintiffs’ failure to respond to the court’s Show Cause Order (Doc.
#7) as a failure to prosecute their claim against Defendants. As a result, the Motion to Dismiss
(Doc. #5) is due to be granted and Defendants are entitled, at a minimum, to have Plaintiffs’
claim dismissed without prejudice for this reason alone.1 However, the court need not further
analyze whether the circumstances are present which warrant a dismissal with prejudice as a
1

The court is indeed mindful that the Federal Rules of Civil Procedure “expressly authorize a district court
to dismiss a claim, including a counterclaim, or entire action for failure to prosecute, or obey a court order or federal
rule.” State Exchange Bank v. Hartline, 693 F.2d 1350, 1352 (11th Cir. 1982); Fed.R.Civ.P. 41(b)-(c). Additionally,
a district court has the “inherent [] authority to enforce its orders and ensure prompt disposition of legal actions.”
State Exchange, 693 F.2d at 1353.

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sanction,2 because Defendants are also entitled to have their motion granted on substantive
grounds.
Indeed, the “split the note” theory has been roundly rejected by Alabama courts,
rendering it ineffective and inapplicable in the present case. See Coleman v. BAC Servicing, 104
So. 3d 195, 205 (Ala. Civ. App. 2012) (noting that “Alabama law specifically contemplates that
there can be a separation” of the note and mortgage); see also Nelson v. Fed. National Mortgage
Association, 97 So. 3d 770, 775 (Ala. Civ. App. 2012) (“[Petitioners] argue that the power-ofsale provision in the mortgage instrument was unenforceable because the note and mortgage had
been separated. This court has recently rejected that argument because it does not comport with
Alabama law.”); Crum v. Lasalle Bank, N.A., 55 So. 3d 266 (Ala. Civ. App. 2009) (rejecting the
notion that the assignee of a mortgage could not enforce the mortgage because the assignor was
not also the holder of the promissory note); Phillips v. Mortgage Electronic Registration
Systems, Inc., 2013 WL 1498956 at *10 (N.D. Ala. 2013) (“The separation of the note and
mortgage does not render either document void . . .”); Levins v. Deutsche Bank Trust Company
Americas, 2013 WL 308999 at *3, n.5 (S.D. Ala. 2013) (“As for plaintiff’s theory that MERS
could not assign the interests that Levin granted it in the Mortgage unless MERS was also the
holder or beneficiary of the Note and security deed, he identifies no authority in support of such
a proposition. The Court is aware of contrary Alabama precedents.”). Lacking any legal vitality,
Plaintiffs’ splitting theory is neither capable of establishing that Defendant MERS was without
the power to assign its mortgage interest to Defendant OneWest, nor effective in showing that
Defendant OneWest lacks standing to foreclose on the underlying mortgage. Accordingly,

2

A dismissal with prejudice is “an extreme sanction . . . [to be] imposed only when: ‘(1) a party engages in
a clear pattern of delay or willful contempt (contumacious conduct); and (2) the district court specifically finds that
lesser sanctions would not suffice.’” Betty K Agencies, Ltd. V. M/V MONDA, 432 F.3d 1333, 1337-38 (11th Cir.
2005) (citations omitted).

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Count III of Plaintiffs’ Amended Complaint fails to state a legally cognizable claim, and
Defendants’ Motion to Dismiss (Doc. #5) is due to be granted. A separate order consistent with
this memorandum opinion will be entered.
DONE and ORDERED this December 11, 2013.

_________________________________
R. DAVID PROCTOR
UNITED STATES DISTRICT JUDGE

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