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 in part and denying in part 74 Motion to Amend/Correct. The motion is granted to the extent that the court has reconsidered the conditional request to amend which it overlooked in its Ruling On Defendants' Motion To Dismiss 70 , but denied as to the conditional and post-dismissal requests for leave to amend. The request to alter, amend, or set aside the Judgment 71 is denied. Signed by Judge Mark W Bennett on 10/16/2012. (Mastalir, Roger)
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.
MERSCORP, INC.; MORTGAGE
ELECTRONIC REGISTRATION
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,
MEMORANDUM OPINION AND
ORDER REGARDING PLAINTIFF’S
MOTION TO ALTER OR AMEND
THE JUDGMENT AND FOR LEAVE
TO FILE AN AMENDED
COMPLAINT
Defendants.
___________________________
TABLE OF CONTENTS
I.
INTRODUCTION........................................................................... 3
A.
Background .......................................................................... 3
B.
The Plaintiff’s Post-Dismissal Motion .......................................... 7
II.
LEGAL ANALYSIS ........................................................................ 8
A.
Sequential Consideration Of Requested Relief ................................ 8
B.
The County’s Motion To Alter Or Amend The Judgment ................ 10
Arguments of the parties ................................................ 10
Analysis .................................................................... 11
a.
The need for reconsideration .................................. 11
i.
Rule 59(e) standards .................................... 11
ii.
Application of the standards ........................... 13
b.
Reconsideration .................................................. 13
i.
Standards for conditional requests to amend ....... 13
ii.
Application of the standards ........................... 16
The Post-Dismissal Request For Leave To Amend ......................... 19
1.
Arguments of the parties ................................................ 19
a.
The County’s arguments ........................................ 19
b.
The defendants’ response....................................... 22
c.
The County’s Reply .............................................. 23
2.
Analysis .................................................................... 24
a.
Standards for post-dismissal amendment .................... 24
b.
Application of the standards ................................... 28
i.
Deficiencies of the post-dismissal motion to
amend ...................................................... 28
ii.
Futility of the repleaded “unjust enrichment”
claim ....................................................... 30
iii. Futility of the other repleaded claims ................ 34
c.
Summary........................................................... 34
1.
2.
C.
III.
CONCLUSION ............................................................................ 34
Following dismissal of this putative class action for failure to state a claim upon
which relief can be granted, the plaintiff county has filed a motion to alter and amend
the judgment and for leave to file an amended complaint. The county complains that I
did not address its conditional request for leave to amend, if I granted the defendant
mortgage companies’ motion to dismiss, and asks that I now consider its post-dismissal
2
motion for leave to file a proposed amended complaint, which it asserts cures the
deficiencies in the dismissed complaint. The mortgage companies respond that the
county has failed to identify any manifest error of law or fact in the decision dismissing
the original complaint or to identify any “new” evidence, after judgment, that would
justify setting aside the prior ruling and judgment. The mortgage companies also argue
that I should deny the county’s post-dismissal motion to amend, because I have already
rejected the county’s argument that its recharacterization of its claims would save those
claims from dismissal, and the county should have advanced its purportedly “new”
theory supporting its claims long ago.
I.
INTRODUCTION
A.
Background
In its original Class Action Petition (docket no. 3),1 plaintiff Plymouth County,
Iowa, (the County) sought 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 all
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
3
allegedly arose 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 required by Iowa law.” Class Action Petition (docket
no. 3), ¶ 1.
The County asserted claims for unjust enrichment, civil conspiracy,
piercing the corporate veil, declaratory judgment, and injunctive relief.
The defendants 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 failed to state claims upon which relief can be granted.
In my August 21, 2012, Memorandum Opinion And Order Regarding Defendants’
Motion To Dismiss (Ruling On Defendants’ Motion To Dismiss) (docket no. 70), see
Plymouth Cnty., IA v. MERSCORP, Inc., ___ F. Supp. 2d ___, 2012 WL 3597430
(N.D. Iowa Aug. 21, 2012), I granted the defendants’ Motion To Dismiss and
dismissed the County’s Class Action Petition, pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure, for failure to state claims upon which relief can be granted.
More specifically, I concluded that, contrary to the County’s attempt to
recharacterize its claims in a manner unsupported by the language of its original
Complaint, all of the County’s claims were based on an alleged requirement under Iowa
law that all mortgage assignments must be recorded. Ruling On Defendants’ Motion
To Dismiss at 12-13. I then concluded that Iowa law includes no such requirement and
that, to the extent that the County’s claims relied on such a requirement, they failed to
state claims upon which relief can be granted. See id. at 14-18.
Defendants 1 through 100 collectively as the “Member Defendants.” Class Action
Petition (docket no. 3), ¶ 30.
4
Next, I recognized that, in its brief, the County had attempted to salvage its
“unjust enrichment” claim (and, hence, its “agency and corporate veil piercing” claim)
by asserting that those claims did not rely on an alleged requirement to record
assignments. Id. at 18. I reiterated that, as pleaded, the “unjust enrichment” claim
relied on an alleged, but non-existent, legal requirement to record assignments of
mortgages as the basis for the contention that the defendants’ conduct somehow resulted
in enrichment that was “unjust.” Id. at 18-19. I concluded that, because the legal
proposition that there was a requirement to record mortgage assignments was wrong,
there were no circumstances pleaded that made it unjust to allow the defendants to
retain the alleged benefit of not paying recording fees. Id. at 19.
I also rejected the County’s “unjust enrichment” claim as recharacterized in its
brief, which was that the defendants improperly “leveraged” the first-lien protection
obtained by initially recording mortgages, with MERS as the nominal mortgagee, then
assigning mortgages among MERS members without recording the assignments. Id. I
concluded that, even though the County recharacterized the “benefit” to the defendants
as the protection derived from recording initial mortgages, the claim failed, because it
still assumed that any assignment or transfer that changed the mortgagee of record must
be recorded to maintain first-lien status, and that it was only by keeping MERS as the
mortgagee of record that such a requirement was avoided. Thus, I concluded that the
allegation of “unjust” enrichment was the same, that is, assignment of mortgages
without recording them, but there was simply no requirement that an assignment of a
mortgage must be recorded, whether or not the assignment changed the mortgagee of
record. Id. at 19-20. I also concluded that, under Iowa law, even if an assignment is
unrecorded, the mortgage would retain its first-lien status, unless it was released and
there was a subsequent purchase for value without notice. This led me to conclude that
the effect of recording is only important as to subsequent purchasers without notice;
5
interim assignees with notice, like the defendants, require no such protection, and
derive no unjust benefit from failing to record interim assignments. Id. at 20.
Thus, I concluded,
[E]ven 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 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.” 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.
Ruling On Defendants’ Motion To Dismiss at 20-21 (citation omitted).
I granted the defendants’ Motion To Dismiss and dismissed the County’s Class
Action Petition in its entirety for failure to state claims upon which relief can be
granted. Id. at 21. I did not, however, address the final paragraph of the County’s
Resistance To Defendants’ Joint Motion To Dismiss Plaintiff’s Class Action Petition
(Resistance To Defendants’ Motion To Dismiss) (docket no. 54-7), which sought leave
to amend the Complaint, if necessary. That paragraph stated the following:
If the Court determines that the Complaint is deficient
in any respect, Plaintiff respectfully requests leave to amend
so as to cure any such deficiency. Under Rule 15(a), leave
to amend should be given freely, and denied only for
reasons of futility of amendment, bad faith or resulting
prejudice to the opposing party. See Fed. R. Civ. P. 15(a);
Carter v. U.S., 123 F. App’x 253, 259 (8th Cir. 2005)
(citing Becker v. Univ. of Neb., 191 F. 3d 904, 908 (8th
Cir. 1999)). Plaintiff has yet to amend the Complaint, and
the instant motion practice represents the first legal test of
6
Plaintiff’s claims. Further, since the date that the Complaint
was filed, Plaintiff has discovered additional information
that serves to corroborate Plaintiff’s allegations.
On
balance, the request for leave to amend, if necessary, is
reasonable and entirely consistent with law in this Circuit.
See Estle v. Country Mut. Ins. Co., 970 F.2d 476, 480 (8th
Cir. 1992) (district court abused discretion in denying leave
to amend after granting defendant’s motion for judgment on
the pleadings).
Resistance To Defendants’ Motion To Dismiss at 38-39.
No proposed Amended
Complaint was attached to the Resistance or otherwise submitted to the court.
The same day that I filed my Ruling On Defendants’ Motion To Dismiss, the
Clerk of Court entered Judgment (docket no. 71) pursuant to that ruling.
B.
The Plaintiff’s Post-Dismissal Motion
On September 19, 2012, the County filed the Motion To Alter Or Amend
Judgment And For Leave To File An Amended Complaint (Post-Dismissal Motion)
(docket no. 74) now before me. In this Post-Dismissal Motion, the County seeks two
things: (1) an order amending the Judgment, pursuant to Rule 59(e) of the Federal
Rules of Civil Procedure, with respect to the County’s request for leave to amend; and
(2) an order, pursuant to Rule 15(a) of the Federal Rules of Civil Procedure, granting
leave to file a proposed amended complaint (the Proposed Amended Complaint), which
the County submitted with its Post-Dismissal Motion.
On October 5, 2012, the
defendants filed their Resistance To Plaintiff’s “Motion To Alter Or Amend The
Judgment And For Leave To File An Amended Complaint” (Resistance To PostDismissal Motion) (docket no. 75). The defendants argue that there was no manifest
error in my Ruling On Defendants’ Motion To Dismiss nor is there any basis to allow a
post-dismissal amendment of the County’s Complaint.
On October 16, 2012, the
County filed a Reply (docket no. 78) in further support of its Post-Dismissal Motion,
7
asserting, inter alia, that the defendants had misconstrued the standards applicable to its
post-dismissal request for leave to amend.
Neither party requested oral arguments on the County’s Post-Dismissal Motion
in the manner required by applicable local rules.
My crowded schedule has not
permitted the timely hearing of such oral arguments, nor do I believe that oral
arguments would be helpful in the disposition of the County’s Post-Dismissal Motion.
Therefore, I will consider that motion on the parties’ written submissions.
II.
A.
LEGAL ANALYSIS
Sequential Consideration Of Requested Relief
As noted above, the County seeks two kinds of relief. First, the County seeks an
order amending the Judgment, pursuant to Rule 59(e) of the Federal Rules of Civil
Procedure, with respect to the County’s request for leave to amend—which I construe
as a request to reconsider the County’s conditional request for leave to amend, if I
found any claims deficient, which I overlooked in my Ruling On Defendants’ Motion
To Dismiss. Second, the County seeks consideration of its post-dismissal request for
leave to file its Proposed Amended Complaint.
As I will explain in more detail below, these requests are subject to different
standards. Indeed, motions for leave to amend are subject to four different standards,
depending upon the timing and nature of the request. First, amendment may be made
as of right, or “as a matter of course,” pursuant to Rule 15(a)(1) of the Federal Rules
of Civil Procedure, 21 days after service of the Complaint or 21 days after service of a
responsive pleading or a Rule 12(b), (e), or (f) motion. FED. R. CIV. P. 15(a)(1).
However, such a motion for leave to amend was never filed in this case. Second, a
pre-dismissal request for leave to amend, that is, one not meeting the timing
requirements of Rule 15(a)(1), is subject to a liberal, “freely given” standard pursuant
8
to Rule 15(a)(2). See FED. R. CIV. P. 15(a)(2) (in cases other than amendment as a
matter of course pursuant to Rule 15(a)(1), amendment is only permissible with the
opposing party’s consent or the court’s leave, and “[t]he court should freely give leave
when justice so requires”); United States ex rel. Roop v. Hypoguard USA, Inc., 559
F.3d 818, 823 (8th Cir. 2009). Again, no such motion was made in this case, because
no proposed amended complaint was offered prior to dismissal. Third, a conditional
request for leave to amend requests leave to file an amended complaint only if the court
grants an opposing party’s motion to dismiss. See In re Iowa Ready-Mix Concrete
Antitrust Litigation, 768 F. Supp. 2d 961 (N.D. Iowa 2011) (identifying the standards
applicable to a conditional request to amend, stating that such a request must include, or
must be shortly followed by, indication of the substance of the proposed amendment,
and explanation of how any amendment would cure the deficiencies identified in the
opposing party’s motion to dismiss). This is the kind of request that the County made,
and I overlooked, at the end of the County’s Resistance To Defendants’ Motion To
Dismiss. Finally, a post-dismissal request for leave to amend is made after a motion to
dismiss or motion for summary judgment has been granted.
Such a motion is
“disfavored” and subject to “different considerations” than pre-dismissal motions,
although the court must be mindful of Rule 15(a)(2) considerations. Hypoguard, 559
F.3d at 823-24. The County has also made such a post-dismissal request for leave to
amend in its Post-Dismissal Motion.
Because the County’s conditional request for leave to amend, which I overlooked
in my Ruling On Defendants’ Motion To Dismiss, and its post-dismissal request to
amend, in its Post-Dismissal Motion with an accompanying Proposed Amended
Complaint, are subject to different standards, I will consider (or reconsider) them
sequentially.
9
B.
The County’s Motion To Alter Or Amend The
Judgment
In its Post-Dismissal Motion, the County first requests an order amending the
Judgment, pursuant to Rule 59(e) of the Federal Rules of Civil Procedure, with respect
to the County’s request for leave to amend—which I construe as a request to reconsider
the County’s conditional request for leave to amend, if I found any claims were
deficient, which I overlooked in my Ruling On Defendants’ Motion To Dismss. The
defendants resist this part of the County’s motion.
1.
Arguments of the parties
The County argues that, when a motion to dismiss is granted, the plaintiff should
usually be given at least one chance to amend its complaint. The County points out
that, here, judgment was entered dismissing its first and only pleading, when it had yet
to be tested on the merits. The County argues that, in In re Ready-Mix Concrete
Antitrust Litigation, 768 F. Supp. 2d 961, 978 (N.D. Iowa 2011), I granted the
plaintiffs leave to amend after dismissing their claims, even though those plaintiffs had
only requested leave to amend in a footnote to their brief opposing dismissal, and they
had already amended their complaint once, but only to add parties, not to correct
deficiencies asserted by the defendants. The County argues that, here, it had expressly
requested leave to amend, if I granted the defendants’ Motion To Dismiss, not just in a
footnote in its Resistance To Defendants’ Motion To Dismiss, but in a separate section
of that Resistance, with supporting authority, underscoring the seriousness of its
intention to amend any of its claims that I found deficient. Thus, the County argues
that its request to reconsider the conditional request for leave to amend is appropriate.
The defendants argue that Rule 59(e) motions are strongly disfavored and are
permitted only when a court commits a manifest error of fact or law or when new
evidence is discovered after judgment. The defendants argue that the County fails to
10
meet these standards, because the County cites no error of law that I made in my
Ruling On Defendants’ Motion To Dismiss when I analyzed the provisions of Iowa law,
nor any facts that I purportedly misstated or misunderstood about the allegations that
the County asserted in its Complaint.
The defendants do not squarely address,
however, whether it was error, manifest or otherwise, for me to fail to consider the
County’s conditional request for leave to amend.
The County’s Reply focuses almost exclusively on the viability of its postdismissal Proposed Amended Complaint, but does assert that the defendants have not
addressed my failure to consider the County’s conditional request for leave to amend.
2.
Analysis
a.
The need for reconsideration
i.
Rule 59(e) standards
Rule 59(e) provides that “[a] motion to alter or amend a judgment must be filed
no later than 28 days after the entry of the judgment.” FED. R. CIV. P. 59(e). There is
no dispute here that the County’s Post-Dismissal Motion is timely under this rule. The
rule does not state any standards for granting or denying such a motion, however.
The Eighth Circuit Court of Appeals has repeatedly explained the applicable
standards, as follows:
“A district court has broad discretion in determining
whether to grant or deny a motion to alter or amend
judgment pursuant to Rule 59(e). . . .” United States v.
Metropolitan St. Louis Sewer Dist., 440 F.3d 930, 933 (8th
Cir. 2006). “Rule 59(e) motions serve the limited function
of correcting manifest errors of law or fact. . . .” Id.
(citation and internal quotation marks omitted).
United States ex rel. Raynor v. National Rural Utilities Co-op. Fin. Corp., 690 F.3d
951, 958 (8th Cir. 2012); Wells Fargo Bank, N.A. v. WMR e-PIN, L.L.C., 653 F.3d
702, 714 (8th Cir. 2011) (motions pursuant to Rule 59(e) and Rule 60(b) “‘serve the
11
limited function of correcting manifest errors of law or fact or to present newly
discovered evidence’” (quoting Lowry v. Watson Chapel Sch. Dist., 540 F.3d 752, 761
(8th Cir. 2008)); Sipp v. Astrue, 641 F.3d 975, 980-81 (8th Cir. 2011) (“As the district
court explained, Rule 59(e)’s limited purpose is to allow the trial court to correct
manifest errors of law or fact. Johnson v. Chater, 108 F.3d 942, 945 n.3 (8th Cir.
1997). The district court’s denial of such a motion is reviewed for a clear abuse of
discretion.
Hagerman v. Yukon Energy Corp., 839 F.2d 407, 413–14 (8th Cir.
1988).”). Somewhat more specifically, an abuse of discretion, within the scope of Rule
59(e), occurs “‘where the district court fails to consider an important factor, gives
significant weight to an irrelevant or improper factor, or commits a clear error of
judgment in weighing those factors.’” Matthew v. Unum Life Ins. Co. of Am., 639
F.3d 857, 863 (8th Cir. 2011) (quoting Kurka v. Iowa Cnty., IA, 628 F.3d 953, 957
(8th Cir. 2010)).
Various district courts have recognized that a Rule 59(e) motion to “reconsider”
may also be granted where the court overlooked a factual or legal argument presented
by a party, but not where a party failed to present a relevant factual or legal argument
to the court in the first instance. See, e.g., Tiffany (NJ), L.L.C. v. Forbse, 2012 WL
3686289, *5 & n.6 (S.D.N.Y. Aug. 23, 2012) (slip op.) (noting that Rule 59(e) was
inapplicable, because the motion was decided under Local Rule 6.3, but that the
standards for “reconsideration” were the same under the two rules, citing In re
Fossamax Prods. Liab. Litig., 815 F. Supp. 2d 649, 651 (S.D.N.Y. 2011)); United
States v. Jasin, 292 F. Supp. 2d 670, 676 (E.D. Pa. 2003). I find that recognizing
such an error as cognizable on a Rule 59(e) motion is consistent with the sorts of abuse
of discretion and error that the Eighth Circuit Court of Appeals has found sufficient to
warrant relief pursuant to Rule 59(e). Specifically, doing so allows a district court the
first opportunity to remedy a “manifest” oversight, cf. Sipp, 641 F.3d at 980-81, and
12
failure to consider an argument of a party is at least as fundamental an error as failure
to consider an important factor in the determination of an issue. Cf. Matthew, 639 F.3d
at 863.
ii.
Application of the standards
Such a failure to address an argument is the sort of error alleged here,
specifically, my overlooking the County’s conditional request for leave to amend. I
acknowledge that, in my written Ruling On Defendants’ Motion To Dismiss, I
overlooked the County’s conditional request, in the County’s Resistance To
Defendants’ Motion To Dismiss at 38-39, for leave to amend if I found any of the
County’s claims deficient.
Thus, to the extent that I overlooked the County’s
conditional request for leave to amend, the County is now entitled to reconsideration of
that request. See, e.g., Tiffany (NJ), L.L.C. v. Forbse, 2012 WL 3686289 at *5 & n.6.
b.
Reconsideration
The question upon such reconsideration is, would I have granted the conditional
request for leave to amend, if I had expressly considered it at the time that I granted the
defendants’ Motion To Dismiss, such that the County is now entitled to relief from the
Judgment?
The answer to that question turns on the standards applicable to a
conditional request for leave to amend.
i.
Standards for conditional requests to amend
In In re Iowa Ready-Mix Concrete Antitrust Litigation, 768 F. Supp. 2d 961
(N.D. Iowa 2011), on which the County in part relies, I identified the standards
applicable to a conditional request to amend, expressly distinguishing those standards
from the standards applicable to a post-dismissal request for leave to amend, as follows:
The Eighth Circuit Court of Appeals recently addressed the
adequacy of a “footnote” conditional request for leave to
amend, as follows:
13
[The plaintiff] never submitted a proposed amended
complaint to the district court, nor did he proffer the
substance of such an amended complaint until he filed
his appellate brief. Instead, Lester merely included a
footnote at the end of his response to Novastar's
motion to dismiss stating that “[t]o the extent that the
court finds the Complaint's allegations insufficient,
plaintiffs respectfully request an opportunity to amend
their claims.” These circumstances mirror those
present in Clayton [v. White Hall Sch. Dist., 778
F.2d 457 (8th Cir. 1985)], where we held that a
district court properly denied a plaintiff leave to
amend because she “did not submit a motion for leave
to amend but merely concluded her response to [the
defendant’s] motion to dismiss with a request for
leave to amend” and “did not offer a proposed
amended complaint or even the substance of the
proposed amendment to the district court.” [778 F.2d
at 460] [.]
See In re 2007 Novastar Fin. Inc., Sec. Litig., 579 F.3d
878, 884–85 (8th Cir. 2009). In these circumstances, the
Eighth Circuit Court of Appeals concluded that the district
court’s denial of leave to amend the complaint was proper.
Id. (noting that, after denial of his “footnote” conditional
request to amend, the plaintiff never filed a motion under
Rules 15(a)(2), 59(e), or 60(b), seeking leave to file an
amended complaint). Although indications of a plaintiff’s
willingness to amend, if existing pleadings are found to be
deficient, does suggest that post-dismissal leave to amend
should be granted, a conditional request for leave to amend
must include, or must be shortly followed, by indication of
the substance of the proposed amendment. See Drobnak v.
Andersen Corp., 561 F.3d 778, 787–88 (8th Cir. 2009). On
the other hand, in deciding whether or not to grant any postdismissal request for leave to amend, the court “may not
ignore the Rule 15(a)(2) considerations that favor affording
parties an opportunity to test their claims on the
14
merits. . . .” United States ex rel. Roop v. Hypoguard USA,
Inc., 559 F.3d 818, 824 (8th Cir. 2009).
In re Iowa Ready-Mix Concrete Antitrust Litig., 768 F. Supp. 2d at 977-78.
In In re Iowa Ready-Mix, I then considered the plaintiffs’ conditional request for
leave to amend, as follows:
Here, the court is mindful that the plaintiffs offered no more
than a “footnote” conditional request for leave to amend in
response to the defendants’ Motions To Dismiss, then filed
an amended complaint while the Motions To Dismiss were
pending that only added additional parties, but made no
substantive changes. These circumstances do not suggest
that the plaintiffs’ indication of willingness to amend was
more than pro forma, as the plaintiffs continued to stand on
the sufficiency of their Amended Consolidated Complaint,
even in the face of the defendants’ challenges. See In re
2007 Novastar Fin. Inc., Sec. Litig., 579 F.3d at 884–85;
Drobnak, 561 F.3d at 787–88. Moreover, the court does
not yet have an indication of the substance of any potential
amendments that the plaintiffs would offer. Id.; Drobnak,
561 F.3d at 787–88. It is only because the court believes
that the interests of justice may be best served by allowing
further amendment, so that the plaintiffs’ claims can be
addressed on the merits, see FED. R. CIV. P. 15(a)(2);
Roop, 559 F.3d at 824 (stating that the court may not ignore
Rule 15(a)(2) considerations), that the court is inclined to
grant leave for further amendment of the plaintiffs’ Amended
Consolidated Complaint.
The court concludes that the best course is to grant
the plaintiffs a reasonable time within which to offer a
proposed amended complaint, then determine whether the
proposed amendment is sufficient to allow this case to
proceed. A court does not abuse its discretion in denying a
post-dismissal motion to amend where amendment would be
futile. In re Medtronic, 623 F.3d at 1208. Any proffered
“cure” of the deficiencies in the proposed amendment must
be relevant and material to the claims in the case and
15
remedy the deficiencies found by the court in the prior
pleadings. Detroit Gen. Retirement Sys. v. Medtronic, Inc.,
621 F.3d 800, 809–10 (8th Cir. 2010). Thus, any proposed
amendment must address the insufficiency of the factual
allegations identified above.
In re Iowa Ready-Mix Concrete Antitrust Litig., 768 F. Supp. 2d at 978 (emphasis
added).
ii.
Application of the standards
The County appears to argue that it is even more appropriate to grant its
conditional request for leave to amend than it was to grant the “footnote” conditional
request of the plaintiffs in In re Iowa Ready-Mix, because the County made a more
substantial request, in the body of its Resistance To Defendants’ Motion To Dismiss,
not merely in a footnote, to make its first amendment, not a second amendment after
failing to address, in a previous amendment, the opposing party’s assertions of
deficiencies in the claims asserted, and that it did so with supporting authority, thus
underscoring the seriousness of its intention to amend any of its claims that I found
deficient. However, in doing so, the County ignores the reasons that I allowed the
plaintiffs in In re Iowa Ready-Mix to offer a further amended complaint.
First, although I referred to the plaintiffs’ conditional requests in In re Iowa
Ready-Mix and in In re 2007 Novastar Financial Securities Litigation as “footnote”
requests, whether the conditional requests to amend were made in a footnote or in the
body of the plaintiffs’ resistances to the motions to dismiss was of no real import. In In
re 2007 Novastar Financial Securities Litigation, the Eighth Circuit Court of Appeals
likened the “footnote” request in the case before it to the request at the conclusion of
the plaintiff’s response to the defendant’s motion to dismiss in Clayton. What was
significant in Clayton and In re 2007 Novastar Financial Securities Litigation, however,
was the lack of a motion for leave to amend, the lack of the proffer of a proposed
16
amended complaint, and the lack of even a statement of the substance of the proposed
amendment. In re 2007 Novastar Fin. Sec. Litig., 579 F.3d at 884-85 (citing Clayton,
778 F.2d at 460). Similarly, I noted in In re Iowa Ready-Mix that what was significant
in Drobnak was the lack of any “indication of the substance of the proposed
amendment,” even where the plaintiff indicated a willingness to amend. In re Iowa
Ready-Mix Antitrust Litig., 768 F. Supp. 2d at 977-78 (citing Drobnak, 561 F.3d at
787-88).
Ultimately, what I considered sufficient in In re Iowa Ready-Mix to overcome
indications of a merely pro forma request for leave to amend, the plaintiffs’ simply
standing on their pleadings in the face of the defendants’ challenges, and the lack of any
indication of the substance of any potential amendments was “the interests of justice” in
allowing a further amendment, so that the plaintiffs’ claims could be addressed on the
merits. Id. at 978. That was so, because the conclusion that the plaintiffs’ complaint
failed to state claims upon which relief could be granted turned on “the insufficiency of
the factual allegations identified” previously in that opinion. Id. Furthermore, I did
not simply grant leave to amend, but granted the plaintiffs “a reasonable time within
which to offer a proposed amended complaint,” explaining that I would then
“determine whether the proposed amendment [wa]s sufficient to allow th[at] case to
proceed,” and noting that I would not abuse my discretion in denying what would then
be a post-dismissal motion to amend where the amendment would be futile. Id. I also
noted that the proffered amendment would have to be relevant and material to the
claims in the case and remedy the deficiencies that I had previously found, which,
again, involved insufficiency of the factual allegations. Id.
In contrast, here, I find that the “interests of justice” did not warrant leave to
proffer a proposed amendment, at least in the circumstances presented at the time that I
determined that the County’s original claims were deficient. The County’s conditional
17
request for leave to amend, while doubtless earnest, was still pro forma, because it
came at the tail end of the County’s Resistance To Defendants’ Motion To Dismiss, in
which the County otherwise stood on the purported sufficiency of the existing
Complaint, it was made without the proffer of a proposed amended complaint, and it
was made without even a statement of the substance of the proposed amendment. In re
2007 Novastar Fin. Sec. Litig., 579 F.3d at 884-85 (citing Clayton, 778 F.2d at 460);
Drobnak, 561 F.3d at 787-88.
Even more importantly, the insufficiency of the County’s claims was the legal
premise of the allegations—the incorrect assertion that recording of mortgage
assignments was required by Iowa law, Ruling On Defendants’ Motion To Dismiss at
14-18, see Plymouth Cnty., IA, ___ F. Supp. 2d at ___, 2012 WL 3597430 at *7-*9—
not the insufficiency of the factual allegations, as was the case in In re Iowa Ready-Mix
Antitrust Ltigation. 768 F. Supp. 2d at 978. Under these circumstances, it appeared
not only beyond doubt that the County could prove no set of facts in support of its claim
that would entitle it to relief, see Ritchie Capital Mgmt., L.L.C. v. Jeffries, 653 F.3d
755, 764 (8th Cir. 2011) (Rule 12(b)(6) motion to dismiss standard), but that the
County could allege no set of facts in support of a claim based on an asserted legal
requirement to record mortgage assignments that would make that claim anything other
than futile. In re Iowa Ready-Mix Concrete Antitrust Litig., 768 F. Supp. 2d at 978 (a
post-dismissal motion for leave to amend may be denied if the proposed amendment
would be futile); see also In re Medtronic, Inc., Sprint Fidelis Leads Prods. Liab.
Litig., 623 F.3d at 1208 (a post-dismissal proffered amendment was properly denied as
futile, where it was based on the same faulty legal premise as the dismissed pleading);
Hintz v. JPMorgan Chase Bank, N.A., 686 F.3d 505, 511 (8th Cir. 2012) (“‘[W]hen
the court denies leave on the basis of futility, it means the district court has reached the
legal conclusion that the amended complaint could not withstand a motion to dismiss
18
under Rule 12(b)(6) of the Federal Rules of Civil Procedure. . . .’” (quoting Cornelia
I. Crowell GST Trust v. Possis Med., Inc., 519 F.3d 778, 781–82 (8th Cir. 2008)).
Therefore, while I erred in overlooking the County’s conditional request for
leave to amend in its Resistance To Defendants’ Motion To Dismiss, there was no
error, manifest or otherwise, in failing to grant the County’s conditional request for
leave to amend—or in failing to grant the County leave to proffer a proposed
amendment—after I determined that the County’s existing Complaint failed to state
claims upon which relief could be granted, because the County had not identified any
viable legal theory on which its claims could proceed, even if amended.
C.
The Post-Dismissal Request For Leave To Amend
What appears to be the main thrust of the County’s Post-Dismissal Motion is not
its argument that I manifestly erred in failing to consider its conditional request to
amend, if I granted the defendants’ Motion To Dismiss, but its argument that I should
now grant its post-dismissal request for leave to file a proffered Amended Complaint.
The defendants assert that the post-dismissal request to amend should be denied.
1.
Arguments of the parties
a.
The County’s arguments
The County argues that it should be given at least one chance to replead its
claims, so that they may be considered on the merits, citing Rule 15(a)(2). The County
recognizes that, in granting the defendants’ Motion To Dismiss as to the “unjust
enrichment” claim (and, indeed, all of the other claims), I relied almost exclusively on
what the County calls my “finding” that there is no requirement for recording mortgage
assignments and paying attendant recording fees under Iowa law. The County asserts
that its Proposed Amended Complaint remedies this deficiency, and, therefore, is not
19
futile, because the Proposed Amended Complaint makes clear that none of the County’s
claims hinge on the existence of a recording requirement under Iowa law.
Somewhat more specifically, the County has summarized its argument, as
follows:
The [Proposed] Amended Complaint pleads a claim for
unjust enrichment based on Defendants’ intentional use of
the MERS® System to avoid recording mortgage
assignments and paying applicable recording fees while
using the initial recordation as the basis for representing
throughout the mortgage securitization process that they had
good title to and were transferring mortgages that were “free
and clear of any pledge, lien, encumbrance or security
interest.” [Proposed Amended Complaint] ¶¶ 82-101, 142151. In other words, the [Proposed] Amended Complaint
makes clear that Defendants were unjustly enriched because
they were able to rely on the protections conferred by
recording without paying for such protections and because
recording allowed them to make representations that were
necessary to their lucrative mortgage securitization efforts.
The [Proposed] Amended Complaint does not make any
allegations regarding “required” or “mandatory” recording
statutes or recording fees under Iowa law.
Plaintiff’s Brief In Support Of Post-Dismissal Motion at 12-13.
The County now
argues that IOWA CODE § 558.41 (establishing the priority of a recorded mortgage or
assignment) is the “crux” of its claims, rather than IOWA CODE § 558.11 (the recording
statute).
The County also argues that the Proposed Amended Complaint provides
additional factual detail about the mortgage securitization process that demonstrates
how the defendants were unjustly enriched, to the detriment of Iowa counties, by using
the MERS System to avoid recording of assignments after the initial recording with
MERS as the nominal mortgagee, including newly-discovered information in the form
of a Prospectus Supplement and Pooling and Servicing Agreement (PSA) filed with the
20
United States Securities and Exchange Commission (SEC) in connection with the
issuance of securities by the SunTrust Alternative Loan Trust, Series 2005-1F. The
County argues that the Prospectus Supplement contains an explicit warning—and, thus,
an admission—that MERS Members recognized that the only way to fully inoculate a
security interest against a subsequent purchaser for value without notice was through
recordation, confirming that the defendants relied on the initial recording as the basis
for representations that the mortgages they held had first-lien status.
The County
argues that this new allegation also addresses my observation that the effect of
recording is only important as to subsequent purchasers without notice, because the
repleaded claim does not depend on the knowledge of the assignments by MERS
Members among themselves. Rather, the County asserts that its new claim is that the
entire MERS system was created and used so that MERS Members could arrogate for
themselves the benefits of recording without paying for such benefits and without
regard for the integrity of public land records.
For similar reasons, the County contends that the other repleaded claims are now
viable. The County argues that its repleaded “civil conspiracy” claim no longer relies
on an alleged violation of a requirement to record assignments, but on the defendants’
intentional creation and concerted use of a shadow recording system to avoid recording
and paying recording fees to county recorders, while benefitting from the protection
provided by recording the initial security instrument. The County also argues that it
has now properly repleaded “piercing the corporate veil” as a remedy, rather than a
claim, for the wrongful conduct elsewhere alleged, which no longer depends on any
violation of the recording law. The County explains that it has added new allegations
that MERS is a mere instrumentality of MERSCORP, which is a mere instrumentality
of the shareholder defendants, with facts supporting that allegation.
Finally, the
County argues that the Proposed Amended Complaint refines the prayers for
21
declaratory and injunctive relief. First, the County argues that it does so by seeking an
order requiring the defendants, jointly and severally, to correct all recordings filed in
the counties of Iowa in which MERS is identified as the mortgagee of record by
recording a corrective instrument that sets forth the entire chain of title for each
security instrument, in order to remedy the damage to county land records. Second,
the County argues that it does so by seeking a declaration that the defendants’ filing of
initial mortgages in the name of MERS and not recording subsequent transfers of
mortgages and notes caused harm to the land records of the counties. The County
argues that these prayers are not based on statutory violations, but on a concerted
scheme to use MERS to avoid recording assignments, which has rendered the land
records of the counties unreliable and opaque.
b.
The defendants’ response
The defendants contend that the Proposed Amended Complaint should be
rejected.
They argue that the Proposed Amended Complaint is an improper post-
dismissal attempt to change the legal theory of the claims. They also argue that the
Proposed Amended Complaint fails to meet the requirements of Rule 15(a)(2), because
it is futile and because the County should have advanced its “new” theory and “new”
evidence long ago.
More specifically, the defendants assert that post-dismissal requests to amend are
“disfavored” and may properly be rejected when they change the legal theory of claims
after the pleader has lost on the first formulation. The defendants argue that this is
exactly what the County is attempting to do here, where the County has changed from a
theory that the defendants were required to record assignments, but had not done so, to
a theory that the defendants wrongfully recorded the initial mortgage with MERS as the
nominal mortgagee, so that they could reap the protection of recording without
recording each subsequent assignment among MERS members.
22
The defendants also argue that the County’s claims based on its “new” theory
are futile, because I have already rejected that theory in my Ruling On Defendants’
Motion To Dismiss, when the “new” theory was asserted as a “recharacterization” of
the County’s claims in the County’s Resistance To Defendants’ Motion To Dismiss.
The defendants argue that, not only did I reject this theory as failing to identify any
“unjustness,” but another district court has since rejected it on the ground that the
alleged benefit of recording was not conferred by the counties, who merely performed a
ministerial task, but by a state statute that granted priority to a recorded lien. The
defendants point out that the County has not alleged that the defendants did not pay
recording fees due when they did record mortgages or assignments, and public records
show that such fees were paid. The defendants argue that, because the County was not
a party to any contracts that the defendants had among themselves or with others
representing that the defendants had first-lien mortgages free of any encumbrances, the
County lacks standing to enforce the terms of those contracts, and, moreover, there is
no misrepresentation that the assignments of MERS mortgages among MERS members
had been recorded, when the contracts make clear that the assignments among MERS
members had not been recorded.
The defendants also assert that the County’s assertion that it is relying on “new”
evidence is incorrect, because the County could and should have asserted its “new”
theory and “new” evidence long ago. In essence, the defendants argue that everything
on which the County now relies was public information from at least the mid-1990s.
c.
The County’s Reply
In reply, the County contends that the defendants rely on red-herrings and
misdirections. The County argues that the defendants have not disputed its primary
contention that the Proposed Amended Complaint no longer relies on any supposed
requirement of Iowa law that mortgage assignments be recorded and that the defendants
23
have not shown any “prejudice” that they would suffer if the filing of the Proposed
Amended Complaint were allowed. The County argues that the defendants incorrectly
rely on a “manifest error/newly discovered evidence” standard, when its post-dismissal
request for leave to amend is still subject to the Rule 15(a)(2) “freely given” standard.
The County also argues that its Proposed Amended Complaint is not futile, because it
relies on facts and claims not presented to or considered by me. The County dismisses
the defendants’ assertion that I have already considered and rejected the amended legal
theory, because I dismissed its original Complaint on the ground that all of the claims,
as pleaded, relied on a supposed, but non-existent, requirement under Iowa law to
record mortgage assignments, but the claims in the Proposed Amended Complaint do
not do so. Finally, the County argues that the defendants’ untimeliness argument is
unavailing, where it filed its post-dismissal motion for leave to amend within the time
provided by Rule 59(e).
2.
Analysis
a.
Standards for post-dismissal amendment
As noted above, post-dismissal motions for leave to amend are “disfavored” and
subject to “different considerations” than pre-dismissal motions, although the court
must be mindful of Rule 15(a)(2) considerations. Hypoguard, 559 F.3d at 823-24.
More specifically, in Hypoguard, the Eighth Circuit Court of Appeals considered “an
issue of law ignored by the parties—when a complaint is dismissed for failure to state a
claim, and plaintiff files a post-judgment motion for leave to file an amended complaint,
is that motion reviewed under the liberal ‘freely give’ standard of Rule 15(a)(2), or
under the more restrictive standards applicable to post-judgment motions under Rules
59(e) and 60(b)?” 559 F.3d at 823 (emphasis added). Thus, the question at issue in
Hypoguard involved specifically the standards applicable to post-dismissal requests for
leave to amend (albeit in comparison to the standards for pre-dismissal requests), but
24
did not involve the standards applicable to a conditional request for leave to amend, that
is, a request to amend if an opposing party’s motion to dismiss is granted.
In Hypoguard, the court resolved the question before it, as follows:
All circuits acknowledge that post-judgment leave to amend
may be granted if timely requested. That conclusion is
compelled by the Supreme Court’s summary reversal of the
denial of such a motion in Foman v. Davis, 371 U.S. 178,
182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). However,
interests of finality dictate that leave to amend should be less
freely available after a final order has been entered. As we
have said in numerous cases, “[a]lthough leave to amend a
complaint should be granted liberally when the motion is
made pretrial, different considerations apply to motions filed
after dismissal.” Briehl v. General Motors Corp., 172 F.3d
623, 629 (8th Cir.1999). Nevertheless, the customary Rule
59(e) standard, which bars attempts to “introduce new
evidence, tender new legal theories, or raise arguments
which could have been offered or raised prior to entry of
judgment,” Innovative Home Health Care, Inc. v. P.T.-O.T.
Assoc. of the Black Hills, 141 F.3d 1284, 1286 (8th Cir.
1998), and Rule 60(b)(1), which limits relief to showings of
“mistake, inadvertence, surprise, or excusable neglect,”
seem ill-suited to the task of determining when a plaintiff
who has failed to plead fraud with the particularity Rule 9(b)
requires should be permitted, post-judgment, to try again.
We have found two circuits that have addressed this
question in reviewing the denial of post-judgment motions
for leave to amend an FCA complaint dismissed for failure
to comply with Rule 9(b). Both held that Rule 59(e) and
Rule 60(b) apply at this stage of the proceedings. But the
Fifth Circuit held that, in this situation, “the considerations
for a motion under Rule 59(e) are the same as those
governing a motion under Rule 15(a).” United States ex rel.
Hebert v. Dizney, 2008 WL 4538308, at *4 (5th Cir. Oct.
10, 2008) (unpublished), applying Rosenzweig v. Azurix
Corp., 332 F.3d 854, 865 (5th Cir. 2003). On the other
hand, the Sixth Circuit applied its normal, restrictive Rule
25
59 and Rule 60 principles, though the issue was of little
importance because the court reversed the denial of leave to
amend based on an intervening change in controlling law, a
circumstance that customarily warrants post-judgment relief.
SNAPP, Inc., 532 F.3d at 507.
In Parnes v. Gateway 2000, Inc., 122 F.3d 539, 55051 (8th Cir. 1997), we applied the “different considerations”
standard and affirmed the denial of a motion for leave to
amend a complaint dismissed under Rule 9(b) because
plaintiffs “failed to provide any valid reason for failing to
amend their complaint prior to the grant of summary
judgment against them.” We again recently applied the
“different considerations” standard in Bills v. United States
Steel LLC, 267 F.3d 785, 788 (8th Cir. 2001). From this
survey of prior case law, we conclude that district courts in
this circuit have considerable discretion to deny a postjudgment motion for leave to amend because such motions
are disfavored, but may not ignore the Rule 15(a)(2)
considerations that favor affording parties an opportunity to
test their claims on the merits, particularly when a fraud
complaint has been dismissed for failure to comply with the
pleading requirements of Rule 9(b).
Hypoguard, 559 F.3d at 823-24 (emphasis added).
In short, then, in Hypoguard, the court distinguished between standards for a
pre-dismissal request for leave to amend (the “freely given” standard) and a postdismissal request for leave to amend (“disfavored”) and further distinguished between
Rule 59(e) (or Rule 60(b)) standards for relief from a judgment (barring attempts to
“introduce new evidence, tender new legal theories, or raise arguments which could
have been offered or raised prior to entry of judgment”) and the standards applicable to
a post-dismissal motion for leave to amend. As to a post-dismissal motion for leave to
amend, the court established that the standard is “that district courts in this circuit have
considerable discretion to deny a post-judgment motion for leave to amend because
such motions are disfavored, but may not ignore the Rule 15(a)(2) considerations that
26
favor affording parties an opportunity to test their claims on the merits.” Id. at 824.
However, the court also recognized that a post-dismissal motion to dismiss is subject to
“different considerations” than a pre-dismissal one, and that those “different
considerations” include the interest in “finality” after dismissal. See id. at 823. The
court in Hypoguard did not simply apply either Rule 15(a)(2) or Rule 59(e) standards to
a post-dismissal motion to amend.
Since Hypoguard, the Eighth Circuit Court of Appeals has maintained these
distinctions. See Morrison Enters., L.L.C. v. Dravo Corp., 638 F.3d 594, 610 (8th
Cir. 2011) (reiterating that “‘[p]ost-dismissal motions to amend are disfavored’”
(quoting In re Medtronic, Inc., Sprint Fidelis Leads Prods. Liab. Litig., 623 F.3d 1200,
1208 (8th Cir. 2010), in turn citing Hypoguard, 559 F.3d at 824); Hawks v. J.P.
Morgan Chase Bank, 591 F.3d 1043, 1050 (8th Cir. 2010) (also applying the “different
considerations” standard to post-dismissal motions to amend than to pre-dismissal
motions to amend).
In these and other decisions, the Eighth Circuit Court of Appeals has recognized
that a district court does not abuse its discretion in denying a post-dismissal motion for
leave to amend, where the plaintiff chose to stand on its original pleadings in the face of
a motion to dismiss that identified the very deficiency upon which the court dismissed
the complaint. See Gomez v. Wells Fargo Bank, N.A., 676 F.3d 655, 665 (8th Cir.
2012) (citing with approval Mitan v. McNiel, 399 Fed. Appx. 144, 145 (8th Cir. 2010)
(unpublished per curiam)); Hypoguard, 559 F.3d at 823-24 (noting that, in Parnes, 122
F.3d at 540-51, the court had applied the “different considerations” standard and had
affirmed the denial of leave to amend, because the plaintiffs failed to provide any valid
reason for failing to amend their complaint prior to dismissal). Moreover, a plaintiff
should not be allowed to stand on one legal theory, then come back to fight on the basis
of some other legal theory after dismissal of claims based on the first formulation.
27
Morrison Enters., L.L.C., 638 F.3d at 610; Hawks, 591 F.3d at 1050 (“‘A district
court does not abuse its discretion in denying a plaintiff leave to amend the pleadings to
change the theory of their case after the complaint has been dismissed under Rule
12(b)(6).’” (quoting Briehl v. Gen. Motors Corp., 172 F.3d 623, 629 (8th Cir. 1999));
Humphreys v. Roche Biomedical Lab., Inc., 990 F.2d 1078, 1082 (8th Cir. 1993)
(“Leave to amend may still be granted [post-dismissal], but a district court does not
abuse its discretion in refusing to allow amendment of pleadings to change the theory of
a case if the amendment is offered after summary judgment has been granted against the
party, and no valid reason is shown for the failure to present the new theory at an
earlier time.” (internal quotations and citation omitted)).
Finally, a post-dismissal
motion to amend should not be granted where the proffered post-dismissal amendment
suffers from the same legal or other deficiencies as the dismissed pleading, In re
Medtronic, Inc., Sprint Fidelis Leads Prods. Liab. Litig., 623 F.3d at 1208; Drobnak,
561 F.3d at 788, or if the proffered amendment is otherwise futile. United States ex
rel. Raynor, 690 F.3d at 958; Hintz, 686 F.3d at 511.
b.
Application of the standards
i.
Deficiencies of the post-dismissal motion to amend
I conclude that leave to amend post-dismissal should be denied in the
circumstances presented here. First, a post-dismissal motion to amend is “disfavored,”
independent of any other consideration. See Hypoguard, 559 F.3d at 823-24; see also
Morrison Enters., L.L.C., 638 F.3d at 610; In re Medtronic, Inc., Sprint Fidelis Leads
Prods. Liab. Litig., 623 F.3d at 1208; Hawks, 591 F.3d at 1050.
Post-dismissal
amendment must be viewed even less favorably, in the particular circumstances of this
case, because the County chose to stand on its original Complaint, even in the face of a
motion to dismiss that identified the very deficiencies upon which I dismissed that
Complaint, and the County has stated no valid reason for not proffering the new theory
28
on which its Amended Complaint is based in an amended pleading before dismissal.
See Gomez, 676 F.3d at 665; Parnes, 122 F.3d at 540-51. As Eighth Circuit law
makes clear, a plaintiff should not be allowed to do precisely what the County is trying
to do here, which is to stand on one legal theory in the face of a motion to dismiss, then
come back to fight on the basis of a different legal theory after dismissal of claims
based on the first formulation. See Morrison Enters., L.L.C., 638 F.3d at 610; Hawks,
591 F.3d at 1050; Briehl, 172 F.3d at 629; Humphreys, 990 F.2d at 1082. Although
the County contends that its claims have never been tested on the merits, see
Hypoguard, 559 F.3d at 824 (when considering a post-dismissal motion to amend, a
district court “may not ignore the Rule 15(a)(2) considerations that favor affording
parties an opportunity to test their claims on the merits”), that argument rings hallow
when I found that the County’s claims, as originally formulated, had no legal merit,
and dismissed them on that basis, and the County failed to offer a pleading prior to
dismissal asserting an alternative legal theory for its claims. Finally, looking to Rule
59(e) standards as a guide to why a post-dismissal motion to amend is “disfavored,” the
purportedly “new” evidence on which additional factual allegations in the Proposed
Amended Complaint are based is in no sense “new.” Wells Fargo Bank, N.A., 653
F.3d at 714 (motions pursuant to Rule 59(e) and Rule 60(b) “‘serve the limited function
of correcting manifest errors of law or fact or to present newly discovered evidence’”
(quoting Lowry, 540 F.3d at 761)).3 The defendants have provided, as Exhibit A to
their Resistance To Post-Dismissal Motion, a chart showing when the purportedly
“new” information was disclosed in public sources in the 1990s. The County’s belated
discovery of this information does not make it “new.”
3
For the reasons explained infra, this purportedly “new” evidence also does not
change the legal insufficiency of the repleaded claims.
29
ii.
Futility of the repleaded “unjust enrichment” claim
More importantly, I believe that the County’s reformulation of its claims, which
all follow from its “unjust enrichment” claim, to base them on recording of original
mortgage assignments, instead of upon failure to record subsequent mortgage
assignments, is futile, for several reasons. See United States ex rel. Raynor, 690 F.3d
at 958 (futility of the proposed amendment justifies denial of a post-dismissal motion to
amend); Hintz, 686 F.3d at 511 (same). First, as the defendants argue, I rejected the
legal adequacy of such a claim, when the County attempted to “recharacterize” its
original claims in this way in its Resistance To Defendants’ Motion To Dismiss, in
complete contradiction of its original pleading. See Ruling On Defendants’ Motion To
Dismiss at 19-21, Plymouth Cnty., IA, ___ F. Supp. 2d at ___, 2012 WL 3597430 at
*10.
Second, the County’s arguments notwithstanding, the Proposed Amended
Complaint does not cure the deficiencies that I found in the “recharacterized” version
of the County’s “unjust enrichment” claim in its Resistance To Defendants’ Motion To
Dismiss. While it may be true that the Proposed Amended Complaint does not make
any express allegations regarding “required” or “mandatory” recording of mortgage
assignments or payment of recording fees under Iowa law,4 the “benefit” alleged in the
“re-recharacterized” claim of “unjust enrichment” in the Proposed Amended Complaint
is still the protection derived from recording the initial mortgages.
This “re-
recharacterization” still does not save the claim, because it still assumes that it is only
by keeping MERS as the mortgagee of record that the recording of subsequent
4
As the defendants point out in their Resistance To Post-Dismissal Motion, 10
n.12, the Proposed Amended Complaint continues to make references to the supposed
necessity of recording assignments, by alleging that the MERS System was designed to
avoid paying recording fees that its members would otherwise have had to pay. See
Proposed Amended Complaint, ¶¶ 6-8, 129.
30
assignments is avoided, which means that the allegation of “unjust” enrichment is still
the same: assignments of mortgages without recording. Because there is no legal
requirement to record mortgage assignments, there is still no circumstance pleaded that
makes it “‘unjust to allow the defendant[s] to retain the benefit under the
circumstances.’” Cf. Ruling On Defendants’ Motion To Dismiss at 19-20, Plymouth
Cnty., IA, ___ F. Supp. 2d at ___, 2012 WL 3597430 at *10 (quoting Lakeside
Feeders, Inc. v. Producers Livestock Mktg. Ass’n, 666 F.3d 1099, 1112 (8th Cir.
2012), in turn quoting State ex rel. Palmer v. Unisys Corp., 637 N.W.2d 142, 149
(Iowa 2001), stating the elements of an “unjust enrichment” claim under Iowa law).
Similarly, the Proposed Amended Complaint does not cure the deficiency that I
noted in the “recharacterized” claim of “unjust enrichment” in the County’s Resistance
To Defendants’ Motion To Dismiss that there was no “unjust” enrichment in failing to
record interim assignments, because the effect of recording is only important as to
subsequent purchasers without notice, but not as to interim assignees with notice, such
as the defendants. See Ruling On Defendants’ Motion To Dismiss at 20, Plymouth
Cnty., IA, ___ F. Supp. 2d at ___, 2012 WL 3597430 at *10. The County tries to
explain why the Proposed Amended Complaint cures this deficiency, as follows:
Whether certain Defendants had notice of the effect of
recording is irrelevant to the validity of Plaintiff’s unjust
enrichment claim, because the claim does not depend on the
knowledge of the assignments by MERS Members inter se.
Rather, Plaintiff’s claim is that the entire MERS® System
was created and used so that MERS Members, such as the
Member and Shareholder Defendants, could arrogate for
themselves the benefits of recording without paying for such
benefits, and without regard for the integrity of public land
records. ¶¶ 6, 82-101. In other words, whether or not a
particular Defendant had notice or required protection has
no bearing on Plaintiff’s overarching theory – that
Defendants have been – and continue to be – unjustly
31
enriched by the very existence of the MERS® System,
which, in turn, relied exclusively on the initial recordation
to fulfill its stated purpose.
Plaintiff’s Brief In Support Of Post-Dismissal Motion at 17. In so arguing, the County
overlooks an essential part of my reasoning, which was that, 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. See Ruling On Defendants’
Motion To Dismiss at 20, Plymouth Cnty., IA, ___ F. Supp. 2d at ___, 2012 WL
3597430 at *10. Thus, as long as MERS remained the mortgagee of record, by virtue
of the initial recording, and did not release the mortgage, there could be no subsequent
purchase for value without notice. I did not suggest that the “recharacterized” claim
depended on knowledge of MERS Members about assignments among themselves; I
concluded that the lack of recording of interim assignments did not change the first-lien
status of the recorded mortgage as a matter of law, so that the defendants had not been
unjustly enriched by their ability to assert first-lien status notwithstanding lack of
recording of interim assignments. To put it another way, in response to the County’s
present argument, as a matter of law, the defendants have not been, and do not continue
to be, unjustly enriched by the very existence of the MERS System, which relies on the
initial recording to fulfill its stated purpose.
Third, the “unjust enrichment” claim in the Proposed Amended Complaint (and,
indeed, the “recharacterized” claim in the County’s Brief In Resistance To Defendants’
Motion To Dismiss) is futile for the reason that it does not allege any “benefit”
conveyed, either directly or indirectly, by the County or at the expense of the County.
See Lakeside Feeders, Inc., 666 F.3d at 1112 (“‘To recover for unjust enrichment
[under Iowa law], [the plaintiff] must show [inter alia]: . . . the enrichment [of the
defendant] was at the expense of [the plaintiff. . . .’” (quoting State ex rel. Palmer, 637
N.W.2d at 149)); State ex rel. Palmer, 637 N.W.2d at 155 (explaining that the benefit
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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”). It is IOWA CODE
§ 558.41 that provides first-lien protection for recorded mortgages and assignments—
that is, an act of the Iowa legislature—not the ministerial act of recording the mortgages
and assignments, that provides the “benefit” identified in the County’s “unjust
enrichment” claim in the Proposed Amended Complaint. Accord Fuller v. MERS, Inc.,
2012 WL 3733869, *14 (M.D. Fla. June 27, 2012) (holding that a nearly identical
“unjust enrichment” claim failed as a matter of law, because where MERS had no legal
duty to file mortgage assignments with the county recorder, the recorder had not, and
could not, allege that he had provided a benefit to MERS; instead, the recorder had
only complied with his statutory obligations by performing the merely ministerial task
of recording assignments, over which the recorder had no discretion, and the lien
priority obtained by recording was a benefit derived from Florida law, not from the
recorder).
The benefit of the protection of initial recording also was not “at the
expense of” the County, see State ex rel. Palmer, 637 N.W.2d at 155, where there is
no pleading that the County did not receive the required fee for recording of the initial
mortgage with MERS as the nominal mortgagee.
The County argues that the
defendants’ use of the MERS System was “at the expense of” the County, because the
defendants did not record subsequent assignments of the mortgages and pay the fees for
recording such subsequent assignments. However, the lack of recording of subsequent
assignments was not “at the expense of” the County, unless recording of subsequent
assignments, and payment of associated fees, was required, which it was not.
The “unjust enrichment” claim in the Proposed Amended Complaint is futile;
consequently, it does not warrant leave to amend.
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iii.
Futility of the other repleaded claims
The deficiencies in the “unjust enrichment” claim in the Proposed Amended
Complaint necessarily make the other claims in the Proposed Amended Complaint futile
as well. The County argues that its repleaded “civil conspiracy” claim no longer relies
on an alleged violation of a requirement to record assignments, but on the defendants’
intentional creation and concerted use of a shadow recording system to avoid recording
and paying recording fees to county recorders, while benefitting from the protection
provided by recording the initial security instrument. This is the same allegation that
purportedly makes the defendants’ use of the MERS System “unjust,” but I have
rejected that contention above.
Similarly, the County’s claims for injunctive and
declaratory relief are futile, where there is no underlying misconduct of the defendants
to remedy.
c.
Summary
I conclude that the County’s post-dismissal request for leave to file its Proposed
Amended Complaint fails to overcome the disfavor with which such motions are viewed
and that the proposed amended claims are futile. I reiterate that what the County seeks,
in its repleaded claims, on its own behalf and on behalf of the putative Class of Iowa
Counties, under the guise of “unjust enrichment” and related claims, is a remedy only
available from the legislature. Thus, the County’s post-dismissal request for leave to
file its Proposed Amended Complaint is denied.
III.
CONCLUSION
Upon the foregoing, the County’s September 19, 2012, Motion To Alter Or
Amend Judgment And For Leave To File An Amended Complaint (Post-Dismissal
Motion) (docket no. 74) is granted in part and denied in part, as follows:
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1.
The motion is granted to the extent that I have now considered the
County’s conditional request to amend, in its Resistance To Defendants’ Motion To
Dismiss, which I overlooked in my Ruling On Defendants’ Motion To Dismiss; but
2.
The motion is denied as to the conditional and post-dismissal requests for
leave to amend.
The request to alter, amend, or set aside the Judgment (docket no. 71) is,
consequently, denied.
IT IS SO ORDERED.
DATED this 16th day of October, 2012.
______________________________________
MARK W. BENNETT
U.S. DISTRICT COURT JUDGE
NORTHERN DISTRICT OF IOWA
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