Plymouth County, Iowa v. Merscorp, Inc. et al--SEE #88 DISMISSING CORINTHIAN - #94 FINAL JUDGMENT DISMISSING AS TO SOME DEFTS - #49 ORDER STAYING CASE AS TO GMAC BANKRUPTCY - STATUS RPT EVERY 90 DAYS AS TO GMAC BANKRUPTCY PER #95 ORD
Filing
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MEMORANDUM OPINION AND ORDER granting 37 Motion to Dismiss. The County's Class Action Petition is dismissed in its entirety for failure to state claims upon which relief can be granted. Signed by Judge Mark W Bennett on 8/21/12. (djs)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF IOWA
WESTERN DIVISION
PLYMOUTH COUNTY, IOWA, by and
through DARIN J. RAYMOND,
Plymouth County Attorney,
No. C 12-4022-MWB
Plaintiff,
vs.
MEMORANDUM OPINION AND
MERSCORP, INC.; MORTGAGE
ORDER REGARDING DEFENDANTS’
ELECTRONIC REGISTRATION
MOTION TO DISMISS
SYSTEMS, INC.; BANK OF AMERICA,
N.A.; BAC HOME LOANS
SERVICING; CITIMORTGAGE, INC.;
CORINTHIAN MORTGAGE CO.;
GMAC RESIDENTIAL FUNDING
CORP.; HSBC BANK, U.S.A., N.A.;
JPMORGAN CHASE BANK, N.A.;
CHASE HOME FINANCE, L.L.C.;
EMC MORTGAGE CORP.; SUNTRUST
MORTGAGE, INC.; WELLS FARGO
BANK, N.A.; WELLS FARGO HOME
MORTGAGE, INC.; WMC MORTGAGE
CORP.; and JOHN DOE DEFENDANTS
1-100,
Defendants.
___________________________
TABLE OF CONTENTS
I.
INTRODUCTION AND BACKGROUND .............................................. 3
A.
Factual And Legal Allegations ................................................... 3
B.
The County’s Claims ............................................................... 6
C.
The Motion To Dismiss ............................................................ 8
II.
LEGAL ANALYSIS ...................................................................... 11
A.
Standards For A Motion To Dismiss .......................................... 11
B.
C.
D.
III.
The Allegations Of Recording Requirements ................................ 12
The Iowa Recording Scheme ................................................... 14
Requirements For An Unjust Enrichment Claim ........................... 18
CONCLUSION ............................................................................ 21
In this putative class action, filed on February 23, 2012, in state court, then
removed to this federal court on March 9, 2012,1 Plymouth County, Iowa, (the County)
seeks to pursue claims on its own behalf and on behalf of all other similarly situated
counties in the State of Iowa against Mortgage Electronic Registration Systems, Inc.
(MERS) and its parent company, MERSCORP, Inc. (MERSCORP), the owner and
operator of a national registry that tracks ownership interests and servicing rights
associated with residential mortgage loans, and against various mortgage companies and
John Doe defendants (the Member Defendants), which are alleged to be members of
MERS, shareholders of MERSCORP, or both.2 The County’s claims arise from the
defendants’ “intentional failure to record all mortgage assignments and instruments that
affect real estate in county recording offices and pay the attendant recording fees, as
1
This action was originally filed in the Iowa District Court for Plymouth County
as Case No. 03751 CVCV 034041, but was removed by the defendants on the basis of
diversity jurisdiction, pursuant to 28 U.S.C. §§ 1332, 1441, and 1446. See Notice of
Removal (docket no. 1).
2
Specifically, the County identifies defendants Bank of America, BAC,
CitiMortgage, Corinthian, GMAC, HSBC, JPMorgan, Chase Home Finance, EMC,
SunTrust, Everhome, Wells Fargo, Wells Fargo Home Finance, WMC, and John Doe
Defendants 1 through 100 collectively as the “Member Defendants.” Class Action
Petition (docket no. 3), ¶ 30.
2
required by Iowa law.” Class Action Petition (docket no. 3), ¶ 1. The County asserts
claims for unjust enrichment, civil conspiracy, piercing the corporate veil, declaratory
judgment, and injunctive relief. The defendants have moved to dismiss this class action
on various grounds, including that the Iowa recording statutes create no private cause of
action in favor of the County, that there is no obligation to record mortgages or
assignments of mortgages under Iowa law, that the County has suffered no compensable
injury that would give it standing, and that the County’s allegations fail to state claims
upon which relief can be granted. The County resists the motion to dismiss.
I.
INTRODUCTION AND BACKGROUND
A.
Factual And Legal Allegations
The factual background here must be drawn from the County’s Class Action
Petition. See Section II.A., infra. The Class Action Petition succinctly summarizes the
nature of the action and the factual and legal basis for it, as follows:
1.
This class action seeks to redress the economic
and public harm to Plaintiff Plymouth County, Iowa, and all
other counties in Iowa, caused by Defendants’ intentional
failure to record all mortgage assignments and instruments
that affect real estate in county recording offices and pay the
attendant recording fees, as required by Iowa law.
2.
In the late 1990s, securitizations of mortgage
loans exponentially expanded because of the outsize profits
they generated. Banks and other financial organizations
securitized residential mortgage loans by selling mortgage
loans to intermediaries—usually investment banks—which,
through yet other intermediaries, pooled the mortgages into
trusts that issued and sold mortgage-backed securities
(“MBS”) to investors. Each of the intermediaries along the
way profited handsomely by collecting fees and other
charges.
3
3.
Each link in the chain of sale from the
originating lender to the issuer of the MBS, however,
required a valid assignment of the mortgage, which, under
state law, mandated that the assignment be recorded in the
county where the real property is located.
4.
To create even greater profits through the
securitization process, Defendants and other leaders in the
mortgage industry conspired to develop a confidential,
electronic registry that would track ownership and servicing
rights for residential mortgage loans outside and to the
manifest detriment of the traditional state recording regimes.
MERSCORP, MERS, and the MERS® System were created
as a result.
5.
Members of MERS, such as Defendant Bank
of America, N.A., name MERS as mortgagee of record
when recording land instruments and use MERS, which has
no meaningful interest in the mortgage, as their proxy in
county land records until a mortgage-terminating event such
as a release or foreclosure occurs.
6.
By using MERS as a placeholder in county
land records, Defendants were and are able to leverage the
initial recording of the land instrument in MERS’ name to
evade county recording fees and avoid publicly recording
assignments of mortgages and deeds of trust to other MERS
Members (defined below).
7.
Defendants’ scheme, perpetrated through the
creation, implementation, and use of MERS and the MERS®
System, to evade payment of recording fees and recording
assignments of mortgages and deeds of trust, has wrongfully
deprived Plaintiff and the other members of the belowdefined Class of millions of dollars in recording fees.
Equally important, Defendants’ intentional conduct has
broken once transparent chains of title in Iowa counties’
public land records by creating gaps through the assignment
of mortgages and deeds of trust that were required to be but
were not recorded.
4
Class Action Petition at ¶¶ 1-7 (emphasis added); and compare id. at ¶¶ 58-77
(describing the defendants’ “scheme” in greater detail). The Class Action Petition later
identifies the Class on behalf of which it is brought as “comprised of each of the 99
counties of the State of Iowa.” Id. at ¶ 94.
The County’s assertion that the defendants failed to record mortgage assignments
as required by Iowa law rests primarily on the following allegations regarding portions
of Iowa’s recording statutes:
33. In keeping with this centuries-old scheme,
Iowa has a mandatory recording statute, which provides as
follows:
The evidence of title shall be filed with the recorder
of deeds of the county in which the real estate is
situated, who shall record the same, and place an
abstract thereof upon the index of deeds. The
recording thereof shall be constructive notice to all
persons, as provided in the cases of entries upon said
index, and the recorder shall receive the same fees
therefore as for recording other instruments.
Iowa Code § 558.11 (emphasis added).
34. Pursuant to section 558.41, “[a]n instrument
affecting real estate is of no validity against subsequent
purchasers for a valuable consideration, without notice, . . .
unless the instrument is filed and recorded in the county in
which the real estate is located, as provided in this chapter.”
Id. § 558.41.
35. The Iowa Code also provides that “[w]here
any mortgage, contract, or other instrument constituting an
encumbrance upon real estate shall be assigned or released
by a separate instrument, it shall be the duty of the recorder
to make a notation where the instrument was originally
indexed, indicating the nature of such assignment or release
and a document reference number of the record where the
same is recorded.” Id. § 558.45.
5
Class Action Petition at ¶¶ 33-35 (emphasis added, unless otherwise indicated).3
B.
The County’s Claims
The County alleges, in Count I of its Class Action Petition, that all of the prior
allegations in its Petition give rise to a claim of “unjust enrichment” against all
defendants, as follows:
106. In order to avoid the payment of recording fees
to Plymouth County and the other Class members, MERS
Members caused MERS to appear in the public land records
of Plymouth County and the Class as mortgagee of record
on mortgage loans that MERS Members registered on the
MERS® System. MERS serves as mortgagee of record with
respect to all such mortgage loans solely as a nominee, in an
administrative capacity, for the beneficial owner or owners
thereof, and their successors and assigns.
107. By naming MERS as the mortgagee of record,
MERS and MERS Members, through the MERS® System,
intended to and did transfer mortgages among MERS
Members without recording such transfers in the public land
records of Plymouth County and the Class, and without
paying the attendant recording fees.
108. But-for the existence of the MERS® System,
such transfers would have been recorded and the required
recording fees would have been paid by MERS and/or the
MERS Members in order to properly transfer mortgages for
purposes of mortgage securitizations and otherwise.
3
The defendants do not assert that the County has misquoted any of these
provisions, and I find that they are accurately quoted. The County alleges that various
other statutory provisions are relevant. These provisions pertain to the duties of the
county recorder, see id. at ¶¶ 36-38, and the recording fees to be collected and the uses
to be made of them, see id. at ¶¶ 39-43. I do not find that those provisions need to be
set out here.
6
109. Defendants received a benefit by naming
MERS as mortgagee of record on mortgages recorded in
Plymouth County and in the other Iowa counties comprising
the Class, and exploiting MERS’ status to transfer
mortgages among MERS Members without recordation and
payment of recording fees.
110. The MERS Members benefited from the
priority conferred by sections 558.11 and 558.41 of the
Iowa Code, which enabled them to represent in agreements
executed as part of the securitization process that they were
transferring valid mortgages.
111. MERSCORP and MERS also benefited by
receiving membership fees, transaction fees, and other
monetary benefits by allowing MERS Members to use
MERS as mortgagee of record, and tracking and transferring
mortgages among MERS Members on the MERS® System.
112. Under the circumstances, it is against equity
and good conscience to permit Defendants to retain the
benefits arising out of or resulting from naming MERS as
mortgagee of record on land instruments recorded in Iowa
[sic] County and the other Class members.
113. If Defendants are permitted to retain the
benefits of naming MERS as mortgagee of record on land
instruments in Plymouth County and in the other Iowa
counties comprising the Class, and using the MERS® System
to transfer mortgages without paying recording fees,
Defendants will be unjustly enriched, to the detriment of
Plymouth County and the other Class members.
114. As a direct and proximate result of
Defendants’ unjust enrichment, Plymouth County and the
other members of the Class have been injured and are
entitled to restitution from Defendants. Plymouth County,
individually and on behalf of the members of the Class,
requests that this Court order Defendants to disgorge all
profits, benefits, and other compensation Defendants
obtained by their wrongful and improper conduct.
7
Class Action Petition, ¶¶ 106-114 (emphasis added).
In Count II of the Class Action Petition, the County asserts a claim of “civil
conspiracy” against the Member Defendants (including the John Doe Defendants),
based on their allegation that the Member Defendants “conspired with each other to
violate Iowa Code § 558.11 and unlawfully withhold recording fees due to each Class
member.” Id. at ¶ 116; see generally id. at ¶¶ 115-120. In Count III, the County
asserts a claim for “agency and corporate veil piercing” against the Member
Defendants (including the John Doe Defendants), in which it “seeks to pierce the
corporate veils of MERS and MERSCORP and impose liability upon the Member
Defendants and John Doe Defendants 1-100 (the ‘Count III Defendants’) for the
actionable conduct of MERSCORP and MERS alleged herein.”
Id. at ¶ 122; see
generally id. at ¶¶ 120-130. In Count IV, the County seeks “declaratory judgment”
against all defendants “that Iowa Code § 558.11 requires the recording of written
instruments that convey or assign mortgages and deeds of trust on real estate located in
Iowa . . . in the county office of the recorder in which such real estate is situated.” Id.
at ¶ 133; see generally id. at ¶¶ 131-133. In Count V, the County seeks “injunctive
relief” against all defendants “permanently enjoining the Defendants from failing to
record mortgages, deeds of trust, and assignment of mortgages and deeds of trust on
real estate located in the State of Iowa with the county office of the record where such
real estate is situated.” Id. at ¶ 135; see generally id. at ¶¶ 134-136.
C.
The Motion To Dismiss
On May 1, 2012, the defendants filed the Joint Motion To Dismiss Plaintiff’s
Class Action Petition (docket no. 37) now before me. As noted above, the defendants
assert several grounds for dismissal. However, I find it necessary to focus on only one
of those grounds, the defendants’ contention that there is no requirement to record
8
mortgages or assignments of mortgages under Iowa law, notwithstanding the County’s
contention that the viability of its claims does not depend upon whether or not there is
such a requirement.
The defendants assert that all of the County’s claims depend upon allegations that
they were required to record mortgage assignments. They assert, however, that IOWA
CODE § 558.11, on which the County principally relies, simply imposes no such
requirement. They argue that this statute requires that “evidence of title” shall be
recorded, but that a mortgage or an assignment does not transfer title in real property
under Iowa law.
Furthermore, they argue, § 558.11 does not even require the
recording of a deed, because, as between the original parties, a deed is valid even if it
is not recorded. Similarly, the defendants argue that § 558.41, on which the County
also relies, plainly does not require the recording of a mortgage or assignment, but only
specifies that an unrecorded mortgage or assignment is not valid against a subsequent
purchaser without notice. They also assert that the Iowa Supreme Court has expressly
held that mortgage assignments do not have to be recorded. The defendants argue that,
absent a requirement to record mortgage assignments, the County’s claims must fail,
because their conduct was entirely consistent with Iowa’s recording statutes. More
specifically, they argue that, in the absence of a statutory requirement to record
assignments, there was nothing “unjust” about their conduct, and there was no benefit
conferred by the County by which they were unjustly enriched.
The County contends, however, that this is not a statutory violation case, so that
the defendants’ contention that Iowa statutes do not require recordation of mortgages or
mortgage assignments is a “straw man” argument. Rather, the County contends that it
has alleged that the Member Defendants “(a) recorded initial mortgages to obtain the
protection, i.e., a first lien, provided by the Iowa recording statute; (b) leveraged the
protection afforded by the initial recordation by registering the mortgage loan on the
9
MERS® System, and assigning the mortgages without paying fees; (c) which allowed
MERS Members to represent at each stage in the securitization process that they were
transferring first lien mortgages; and (d) which, but for MERS, they could have done
only by recording assignments and paying the attendant fees in conjunction therewith.”
Plaintiff’s Brief (docket no. 54-7), 20 (citing Class Action Petition, ¶¶ 62-65, 74). The
County argues that these allegations underlie all of its claims and none rely on an
alleged legal requirement to record assignments. The County argues that Iowa law
does require the recording of mortgages and assignments to ensure priority of the
mortgage. The County points out that the defendants do not dispute that they did
record initial mortgages to secure the protections of § 558.41. The County also argues
that, once a mortgage is recorded, § 558.45 requires that any subsequent assignment be
reflected in county land records. The County argues that § 558.41 is consistent with
Iowa Supreme Court declarations that secret or clandestine assignments are open to
abuse, so all assignments should be made a matter of record to comply with the spirit,
if not the letter, of Iowa’s recording law. The County also argues that the defendants’
scheme improperly separates the mortgage from the debt it secures. Finally, on this
issue, the County contends that it has adequately pleaded an unjust enrichment claim,
because the benefit does not have be directly conferred by the plaintiff on the
defendant, the benefit to the defendant just has to be at the expense of the plaintiff, and
no violation of a statute is required for enrichment to be “unjust.”
In reply, the defendants reiterate that the County’s claims all depend upon there
being a duty to record mortgages and mortgage assignments under Iowa law, the
County’s recharacterization of its claims notwithstanding, but there is no such duty.
They point out that the relief that the County seeks is payment of recording fees for all
assignments and declarations and injunctions requiring payment of recording fees for all
assignments.
They point out that the County’s allegation in support of its “unjust
10
enrichment” claim that they behaved “unjustly” is that they did not pay required
recording fees. They argue that the County’s attempt to recharacterize its claims as
based on using initial recording of a mortgage to obtain first lien protection states
nothing more than what anyone recording a mortgage seeks, and that the allegation that
they then “leveraged” initial recordings by transferring mortgages without paying
recording fees is no allegation of wrongdoing, where there was no requirement to
record assignments. The defendants argue that, to the extent that they are allegedly
taking a risk by not recording mortgage assignments to other Member Defendants, it is
a lawful risk and of no concern to the County. Similarly, they argue that their ability to
represent that they are transferring first lien mortgages is also of no concern to the
County. Indeed, they point out that the mortgages do remain first lien mortgages until
the debt is satisfied or the mortgage is released. Although the defendants recognize the
possibility that the mortgagee (MERS) could release the mortgage to a subsequent
purchaser without notice, thus reducing the priority of the assigned mortgage, they
argue that possibility has nothing to do with the County’s claim for recording fees.
Thus, they argue that the MERS System complies with Iowa law.
II.
A.
LEGAL ANALYSIS
Standards For A Motion To Dismiss
“When ruling on a defendant’s motion to dismiss, a judge must accept as true all
of the factual allegations contained in the complaint.” Erickson v. Pardus, 551 U.S.
89, 94 (2007) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)).
Thus, the factual background to a motion to dismiss must necessarily be drawn from the
plaintiffs’ factual allegations. On the other hand, on a motion to dismiss, courts “are
not bound to accept as true a legal conclusion couched as a factual allegation.”
Papasan v. Allain, 478 U.S. 265, 286 (1986). Thus, the accuracy of a plaintiff’s legal
11
allegations is a matter for the court to determine. Indeed, I find that whether or not
dismissal is appropriate in this case turns entirely on the truth of the County’s legal
allegations.
B.
The Allegations Of Recording Requirements
The County’s assertion that it is not alleging a statutory violation as the basis for
its claims is blatantly contrary to the allegations in its Class Action Petition. In its
Class Action Petition, the County explains the nature of its action as “caused by
Defendants’ intentional failure to record all mortgage assignments and instruments that
affect real estate in county recording offices and pay the attendant recording fees, as
required by Iowa law,” Class Action Petition at ¶ 1 (emphasis added); that recording is
“mandated” for a “valid assignment of a mortgage” under Iowa law, id. at ¶ 3; and that
the defendants broke the transparent chain of title by “creating gaps through the
assignment of mortgages and deeds of trust that were required to be but were not
recorded,” id. at ¶ 7 (emphasis added). Similar allegations of a “requirement” to
record assignments, pursuant to specific statutory provisions, and “violation” of those
statutes or a “requirement” to record assignments can be found in paragraphs 9, 33, 46,
58, 96(a), and 96(b) of the Class Action Petition.
The “unjust enrichment” claim in Count I also specifically alleges that the
defendants transferred mortgages without paying the “attendant” recording fees, that,
but for the existence of MERS, such transfers would have been recorded, that the
“required” recording fees would have been paid, and that it is under these
circumstances that the defendants have been unjustly enriched. See id. at ¶¶ 107, 108,
and 112. These allegations assume that any assignment or transfer that changes the
mortgagee of record must be recorded, and that it is only by keeping MERS as the
mortgagee of record that such a requirement is avoided. Such a claim necessarily
12
requires proof of a requirement that an assignment of a mortgage must be recorded,
even if it does not change the mortgagee of record.
The other counts are, if anything, even more explicitly based on an alleged
violation of a requirement to record assignments:
the “civil conspiracy” claim in
Count II expressly alleges that the defendants “conspired with each other to violate
Iowa Code § 558.11 and unlawfully withhold recording fees due to each Class
member,” see id. at ¶ 116 (emphasis added); the “agency and corporate veil piercing”
claim in Count III expressly alleges that the Member Defendants are liable for the
actionable conduct of MERSCORP and MERS, which was previously pleaded as failing
to record mortgage assignments as required by law, see id. at ¶ 122; the “declaratory
judgment” claim in Count IV seeks a declaration against all defendants “that Iowa Code
§ 558.11 requires the recording of written instruments that convey or assign mortgages
and deeds of trust on real estate located in Iowa . . . in the county office of the
recorder in which such real estate is situated,” id. at ¶ 133 (emphasis added); see
generally id. at ¶¶ 131-133; and the “injunctive relief” claim in Count V seeks
“injunctive relief” against all defendants “permanently enjoining the Defendants from
failing to record mortgages, deeds of trust, and assignment of mortgages and deeds of
trust on real estate located in the State of Iowa with the county office of the record
where such real estate is situated,” id. at ¶ 135 (emphasis added); see generally id. at
¶¶ 134-136. Thus, each such claim depends upon an alleged requirement to record
mortgage assignments and seeks as relief either the declaration of a requirement to do,
injunctive enforcement of a requirement to do so, or damages for failure to do so.
In the face of these specific allegations in the Class Action Petition, the County’s
attempt to recharacterize its claims as in no way dependent upon a requirement to
record mortgage assignments is disingenuous at best. The claims plainly are based on
such an alleged requirement.
13
C.
The Iowa Recording Scheme
There is, however, no such requirement in Iowa law. I have noted that the Iowa
Supreme Court has explained Iowa rules of statutory construction as follows:
When confronted with the task of determining the meaning
of a statute, we have stated:
The goal of statutory construction is to determine
legislative intent. We determine legislative intent
from the words chosen by the legislature, not what it
should or might have said. Absent a statutory
definition or an established meaning in the law, words
in the statute are given their ordinary and common
meaning by considering the context within which they
are used. Under the guise of construction, an
interpreting body may not extend, enlarge or
otherwise change the meaning of a statute.
Auen v. Alcoholic Beverages Div., 679 N.W.2d 586, 590
(Iowa 2004) (citations omitted). The interpretation of a
statute requires an assessment of the statute in its entirety,
not just isolated words or phrases. State v. Young, 686
N.W.2d 182, 184-85 (Iowa 2004). Indeed, “we avoid
interpreting a statute in such a way that portions of it
become redundant or irrelevant.” T & K Roofing Co. v.
Iowa Dep't of Educ., 593 N.W.2d 159, 162 (Iowa 1999)
(citation omitted). We look for a reasonable interpretation
that best achieves the statute's purpose and avoids absurd
results. Harden v. State, 434 N.W.2d 881, 884 (Iowa
1989).
Schadendorf v. Snap-On Tools Corp., 757 N.W.2d 330, 337-38 (Iowa 2008); see Dorr
v. Weber, 635 F. Supp. 2d 937, 945 (N.D. Iowa 2009) (quoting the above from
Schadendorf). With these rules of statutory construction as a starting point, I have
observed that, under Iowa law,
14
[T]he court’s role is, first, to determine whether the
meaning of the statute is plain, and if so, to give effect to
that plain meaning. See State v. Public Employment
Relations Bd., 744 N.W.2d 357, 360-61 (Iowa 2008)
(“When we interpret a statute, our primary goal is to
ascertain the legislature's intent. State Pub. Defender v.
Iowa Dist. Ct., 663 N.W.2d 413, 415 (Iowa 2003). To
determine the legislature’s intent, we first examine the
language of the statute. Id. ‘If the statutory language is
plain and the meaning clear, we do not search for legislative
intent beyond the express terms of the statute.’ Horsman v.
Wahl, 551 N.W.2d 619, 620-21 (Iowa 1996).”); Birchansky
Real Estate, L.C. v. Iowa Dep’t of Public Health, 737
N.W.2d 134, 139 (Iowa 2007) (“‘If the statute’s language is
clear and unambiguous, we apply a plain and rational
meaning consistent with the subject matter of the statute.’”)
(quoting ABC Disposal Sys., Inc. v. Dep’t of Natural Res.,
681 N.W.2d 596, 603 (Iowa 2004)).
Dorr, 635 F. Supp. 2d at 945-46.
Here, it could not be plainer that none of the statutes upon which the County
relies imposes a requirement on a party assigning a mortgage or receiving such an
assignment to record the assignment. See id. (statutory interpretation under Iowa law
begins with the plain meaning of statutory language). Section 558.11 imposes no such
requirement, because what it plainly does is require the recorder to record “evidence of
title,” see IOWA CODE § 558.11, but under Iowa law, a mortgage, and hence an
assignment of a mortgage, does not transfer title in real property. See, e.g., Norwest
Credit, Inc. v. City of Davenport, 626 N.W.2d 153, 156 (Iowa 2001) (“As Iowa is a
lien theory state, title does not pass to the mortgagee. See Iowa Code § 557.14.”);
Bates v. Pabst, 273 N.W. 151, 152 (Iowa 1937) (“No doubt the execution of the
mortgage to plaintiff transferred no estate in or title to the land. It merely created a
specific lien or charge thereon in favor of the plaintiff.”); Sheakley v. Mechler, 203
N.W. 929, 930 (Iowa 1925) (“We have long since relegated to the legal rag bag of the
15
past the common-law theory of a mortgage, and have adopted the equitable or lien
theory. The mortgagee is a mere lienholder. He acquires no legal right to the property
as such. . . .”).
Section 558.41 does state that “[a]n instrument affecting real estate is of no
validity against subsequent purchasers for a valuable consideration, without notice, . . .
unless the instrument is filed and recorded in the county in which the real estate is
located, as provided in this chapter.” Even so, plainly absent from that statement of the
consequences of not recording such an instrument is any requirement that an assignment
be recorded. Dorr, 635 F. Supp. 2d at 945-46 (statutory interpretation begins with
plain meaning). The incentive to avoid possible loss of validity against subsequent
purchasers without notice does not amount to a requirement that an assignment must be
recorded by either a mortgagee or an assignee.
Finally, § 558.45 imposes no duty or requirement on a mortgagee or assignee to
record an assignment; what it plainly does is impose upon the recorder a duty to record
any such assignment presented to the recorder. IOWA CODE § 558.45 (“Where any
mortgage, contract, or other instrument constituting an encumbrance upon real estate
shall be assigned or released by a separate instrument, it shall be the duty of the
recorder to make a notation where the instrument was originally indexed, indicating the
nature of such assignment or release and a document reference number of the record
where the same is recorded.”).
Indeed, the Iowa Supreme Court observed the better part of a century ago,
It is true we have no statute which, in express terms,
requires the recording of assignments of mortgages either of
real or personal property, but it has very frequently been
held that, as to the former, an unrecorded assignment will be
void in favor of subsequent purchasers and existing
creditors, without notice. Central Trust Co. of Illinois v.
Stepanek, 138 Iowa, 131, 115 N. W. 891, 15 L. R. A. (N.
16
S.) 1025, 128 Am. St. Rep. 175, with cases cited. This
principle, however, finds application only when a subsequent
purchaser for value, without notice, is the party invoking the
rule. It is urged, however, by the appellee in the case at bar
that, in the absence of a record of an assignment of the
mortgage or of the transfer noted upon the record of
mortgage, the mortgage is presumed to be owned by and
controlled by the mortgagee, and all men may deal with the
mortgage or the land, resting upon this presumption in the
absence of actual knowledge of the assignment of the
mortgage. In support of this proposition, Parmenter v.
Oakley et al., 69 Iowa, 389, 28 N. W. 653, is cited.
The proposition affirmed by appellee must be read in
the light of the facts of any given case. It is true that the
same reason exists to require the assignee of a mortgage to
record the assignment, as to require the mortgagee to record
his mortgage, but in each case it is a subsequent purchaser
for value, without notice, that is within the contemplation of
the rule.
Shoemaker v. Raglund, 211 N.W. 564, 566 (Iowa 1926) (emphasis added); Shoemaker
v. Minkler, 211 N.W. 563, 564 (Iowa 1926) (“There is no requirement of statute that
mortgage assignments be placed of record, in order to protect the assignee against the
payment of the notes secured thereby to the assignor who does not have possession
thereof.”).
Thus, the Iowa Supreme Court has not recognized any requirement to
record assignments implicit in the statutory scheme. There is simply no requirement
to record assignments of mortgages under Iowa law.
To the extent that the County’s claims rely on such a requirement, they fail to
state claims upon which relief can be granted. Because Counts II (conspiracy), IV
(declaratory judgment), and V (injunctive relief) explicitly rely on the contention that
recording of assignments is a requirement of Iowa law, and that reliance is misplaced,
those Counts are plainly subject to dismissal. What these claims seek is an extension of
the recording statutes, under the guise of construction, that completely changes the
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meaning of the statutes, but the courts cannot impose such a construction.
See
Schadendorf, 757 N.W.2d at 337 (quoting Auen, 679 N.W.2d at 590).
The County attempts to salvage its “unjust enrichment” claim in Count I (and,
hence, its “agency and corporate veil piercing” claim in Count III) by asserting that
those counts do not rely on a requirement to record assignments. I will give some
further consideration to that contention.
D.
Requirements For An Unjust Enrichment Claim
“To recover for unjust enrichment [under Iowa law], [the plaintiff] must show:
‘(1) [the defendant] was enriched by the receipt of a benefit; (2) the enrichment was at
the expense of [the plaintiff]; and (3) it is unjust to allow the defendant to retain the
benefit under the circumstances.’”
Lakeside Feeders, Inc. v. Producers Livestock
Mktg. Ass’n, 666 F.3d 1099, 1112 (8th Cir. 2012) (quoting State ex rel. Palmer v.
Unisys Corp., 637 N.W.2d 142, 149 (Iowa 2001)); Waldner v. Carr, 618 F.3d 838,
648 (8th Cir. 2010) (stating the elements in a similar way (quoting State ex rel. Palmer,
637 N.W.2d at 154–55)).
The Iowa Supreme Court has explained that “unjust
enrichment is a broad principle with few limitations.” State ex rel. Palmer, 637
N.W.2d at 155. Thus, the benefit in question need not “be conferred directly by the
plaintiff,” because “[t]he critical inquiry is that the benefit received be at the expense of
the plaintiff.” Id.
First, I reiterate that, as pleaded, the County’s “unjust enrichment” claim relies
on an alleged—but nonexistent—legal requirement to record assignments of mortgages,
as the basis for the contention that the defendants’ conduct somehow resulted in
enrichment that was “unjust.” See Lakeside Feeders, Inc., 666 F.3d at 1112. More
specifically, the “unjust enrichment” claim specifically alleges that the defendants
transferred mortgages without paying the “attendant” recording fees and that, but for
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the existence of MERS, such transfers would have been recorded, that the “required”
recording fees would have been paid, and that it is under these circumstances that the
defendants have been unjustly enriched. See id. at ¶¶ 107, 108, and 112 (allegations in
Count III). As I stated above, these allegations assume that any assignment or transfer
that changes the mortgagee of record must be recorded, and that it is only by keeping
MERS as the mortgagee of record that such a requirement is avoided, but there is
simply no requirement that an assignment of a mortgage must be recorded, whether or
not it changes the mortgagee of record. Thus, as pleaded in Count I, this claim fails to
state a claim upon which relief can be granted, because the legal proposition on which
it is based is wrong. To put it another way, because the legal proposition is wrong,
there is no circumstance pleaded that makes it “‘unjust to allow the defendant to retain
the benefit under the circumstances.’”
Lakeside Feeders, Inc., 666 F.3d at 1112
(quoting State ex rel. Palmer, 637 N.W.2d at 149).
Nevertheless, the County contends that its “unjust enrichment” claim does not
depend upon a requirement that assignments be recorded, because it has recharacterized
or clarified that claim in its brief to be that the Member Defendants “(a) recorded initial
mortgages to obtain the protection, i.e., a first lien, provided by the Iowa recording
statute; (b) leveraged the protection afforded by the initial recordation by registering the
mortgage loan on the MERS® System, and assigning the mortgages without paying
fees; (c) which allowed MERS Members to represent at each stage in the securitization
process that they were transferring first lien mortgages; and (d) which, but for MERS,
they could have done only by recording assignments and paying the attendant fees in
conjunction therewith.” Plaintiff’s Brief (docket no. 54-7), 20 (citing Class Action
Petition, ¶¶ 62-65, 74 (allegations concerning “Defendants’ Scheme”)).
In this recharacterization, the “benefit” is the protection derived from recording
the initial mortgages. Nevertheless, this clarification or recharacterization does not
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save the claim, because it still assumes that any assignment or transfer that changes the
mortgagee of record must be recorded to maintain first lien status, and that it is only by
keeping MERS as the mortgagee of record that such a requirement is avoided. In other
words, the allegation of “unjust” enrichment is the same: assignments of mortgages
without recording them. Again, there is simply no requirement that an assignment of a
mortgage must be recorded, whether or not it changes the mortgagee of record.
Moreover, the lien created by a mortgage continues until the mortgage is
released, whether or not the mortgage (or a subsequent assignment) is recorded. As the
Iowa Supreme Court explained more than half a century ago,
‘The lien of the mortgage is presumed to continue until the
debt is paid. . . . It is elementary that, if the original
mortgage is released through mistake, it may be restored in
equity and given its original priority, except as to subsequent
purchasers for value and without notice.’
Shalla v. Shalla, 23 N.W.2d 814, 822 (Iowa 1946) (quoting Cherry v. Welsher, 192
N.W. 149, 151 (Iowa 1923)); Johnson v. Myer, 198 N.W. 654, 657 (Iowa 1924) (“In
the absence of an intentional release of the security, the lien of a mortgage continues
until the debt is paid,” so an unintentional release does not change the priority of the
mortgage lien). Thus, despite unrecorded assignments, a mortgage would retain its
first lien status, unless it was released and there was a subsequent purchase for value
without notice. The effect of recording is only important as to subsequent purchasers
without notice; interim assignees with notice, like Member Defendants, require no such
protection, see Raglund, 211 N.W. at 566, and derive no unjust benefit from failing to
record interim assignments.
Thus, even as recharacterized in the County’s brief, the “unjust enrichment”
claim fails to state a claim upon which relief can be granted, because the legal
proposition on which it is based is wrong. Specifically, an allegation that the Member
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Defendants recorded only the original mortgage, with MERS as the mortgagee, then
assigned the mortgage among Member Defendants without recording those
assignments, does not allege any conduct that somehow resulted in enrichment that was
“unjust.” See Lakeside Feeders, Inc., 666 F.3d at 1112. Under these circumstances,
the “unjust enrichment” claim in Count I and, hence, the “agency and corporate veil
piercing” claim in Count III, must be dismissed for failure to state a claim upon which
relief can be granted.
III.
CONCLUSION
What the County seeks, on its own behalf and on behalf of the putative Class of
Iowa Counties, under the guise of construction of recording statutes, is an extension of
those statutes that completely changes the meaning of the statutes, but the courts have
no power to grant such an extension. See Schadendorf, 757 N.W.2d at 337 (quoting
Auen, 679 N.W.2d at 590). What the County seeks is a recording requirement that the
legislature has declined to create.
THEREFORE, the defendants’ May 1, 2012, Joint Motion To Dismiss
Plaintiff’s Class Action Petition (docket no. 37) is granted, and the County’s Class
Action Petition is dismissed in its entirety for failure to state claims upon which relief
can be granted.
IT IS SO ORDERED.
DATED this 21st day of August, 2012.
______________________________________
MARK W. BENNETT
U.S. DISTRICT COURT JUDGE
NORTHERN DISTRICT OF IOWA
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