The County of Ramsey et al v. MERSCORP Holdings, Inc. et al

Filing 110

ORDER granting 72 defendants' Motion to Dismiss (Written Opinion). Signed by Senior Judge David S. Doty on 8/26/2013. (PJM)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Civil No. 13-474(DSD/LIB)
The County of Ramsey, on behalf
of themselves and all other
Minnesota counties and The
County of Hennepin, on behalf
of themselves and all other
Minnesota Counties,
Plaintiffs,
ORDER

v.
MERSCORP Holdings, Inc., Mortgage
Electronic Registration Systems,
Inc., Bank of America Corporation,
Bank of America, N.A., Citigroup,
Inc., Citibank, N.A., CitiMortgage,
Inc., Deutsche Bank National Trust
Company, EverBank, Goldman Sachs
Mortgage Company, GS Mortgage
Securities Corp., HSBC Bank USA,
N.A., JP Morgan Chase Bank NA, Morgan
Stanley ABS Capital I, Inc., SunTrust
Mortgage, Inc., TCF National Bank, The
Bank of New York Mellon, United Guaranty
Corporation, US Bank N.A., Wells Fargo
Bank N.A., and Does Corporation I-MMM,
Defendants.

Thomas J. Foley, Esq., Foley Law Group, 332 Minnesota
Street, Suite W-1450, St. Paul, MN 55101; John J. Choi,
Esq., John T. Kelly, Esq., Kyle M. Thomas, Esq., Office
of the Ramsey County Attorney, 121 Seventh Place East.
Suite 4500, St. Paul, MN 55101; Christian Siebott, Esq.,
Jeffrey D. Lerner, Esq. and Bernstein Liebhard LLP, 10
East 40th Street, 22nd Floor, New York, NY 10016; Kevin C/
Quigley, Esq. and Hamilton, Quigley & Twait, PLC, 332
Minnesota Street, Suite W-1450, St. Paul, MN 55101;
Michael O. Freeman, Esq., Jane N.B. Holzer, Esq., Paul R.
Hannah, Esq., Office of the Hennepin County Attorney, 300
South Sixth Street, Suite C-2000, Minneapolis, MN 55487,
counsel for plaintiffs.

Robert M. Brochin, Esq. and Morgan, Lewis & Bockius LLP,
200 South Biscayne Boulevard, Suite 5300, Miami, FL
33131; Brendan Radke, Esq., Elizabeth A. Frohlich, Esq.
and Morgan Lewis & Bockius LLP, One market Spear Street
Tower, San Francisco, CA 94105; Robert J. Pratte, Esq.,
Fulbright & Jaworski LLP, 80 South Eighth Street, Suite
2100, Minneapolis, MN 55402; Joseph F. Yenouskas, Esq.,
Thomas M. Hefferon, Esq. and Goodwin Procter LLP, 901 New
York Avenue N.W., Washington, D.C. 20001; Kevin M.
Decker, Esq., Mark G. Schroeder, Esq. and Briggs &
Morgan, PA, 80 South Eighth Street, Suite 2200,
Minneapolis, MN 55402; Christopher S. Comstock, Esq.,
Lucia Nale, Esq., Thomas V. Panoff, Esq. and Mayer Brown
LLP, 71 South Wacker Drive, Chicago, IL 60606; Thomas J.
Lallier, Esq., Cameron A. Lallier, Esq., Thomas W. Pahl,
Esq. and Foley & Mansfield, PLLP, 250 Marquette Avenue,
Suite 1200, Minneapolis, MN 55401; Brian M. Forbes, Esq.,
R. Bruce Allensworth, Esq., Ryan M. Tosi, Esq. and K & L
Gates LLP, State Street Financial Center, One Lincoln
Street, Boston, MA 02111; Todd A. Noteboom, Esq., Bryant
D. Tchida, Esq., David R. Crosby, Esq. and Leonard,
Street and Deinard, PA, 150 South Fifth Street, Suite
2300, Minneapolis, MN 55402; Gregory J. Marshall, Esq.,
One Arizona Center, 400 East Van Buren, Phoenix, AZ
85004; Charles F. Webber, Esq., Erin L. Hoffman, Esq. and
Faegre Baker Daniels, LLP, 90 South Seventh Street, Suite
2200, Minneapolis, MN 555402; Andrew R. Louis, Esq.,
Matthew P. Previn, Esq. and Buckley Sandler LLP, 1250
24th Street N.W., Suite 700, Washington, DC 20037; Sonya
R. Braunschweig, Esq., William F. Stute, Esq. and DLA
Piper LLP, 80 South Eighth Street, Suite 2800,
Minneapolis, MN 55402; Kyle A. Eidsness, Esq., Timothy D.
Kelly, Esq. and Timothy D. Kelly, P.A., Suite 3720, 80
South Eighth Street, Minneapolis, MN 55402; Brandon B.
Cate, Esq., Joseph R. Falasco, Esq. and Quattlebaum,
Grooms, Tull & Burrow PLLC, 4100 Corporate Center Drive,
Suite 210, Springdale, AZ 72762; Matthew C. Murphy, Esq.
and Nilan, Johnson & Lewis, PA, Suite 400, 120 South
Sixth Street, Minneapolis, MN 55402; David M. Aafedt,
Esq., Joseph M. Windler, Esq. and Winthrop & Weinstine,
PA, 225 South Sixth Street, Suite 3500, Minneapolis, MN
55402; Todd S. Kartchner, Esq., Fennemore Craig, 2394
East Camelback Road, Suite 600, Phoenix, AZ 85016; Eric
R. Sherman, Esq., Peter W. Carter, Esq. and Dorsey &
Whitney, LLP, 50 South Sixth Street, Suite 1500,
Minneapolis, MN 55402, counsel for defendants.

2

This matter is before the court upon the motion to dismiss by
defendants (collectively, MERS Defendants).1

Based on a review of

the file, record and proceedings herein, and for the following
reasons, the motion is granted.

BACKGROUND
This dispute arises out of the MERS Defendants’ failure to
record mortgage assignments with Minnesota county recorders.
MERS & Mortgage-Backed Securities
In the 1990s, mortgage-backed securities (MBS) emerged as a
popular investment vehicle. As part of the securitization process,
lender banks initiated residential mortgage loans, which were then
resold to other commercial and investment banks.

Compl. ¶ 40.

Often the mortgage loans were pooled into trusts and issued to
investors as an MBS.

Id.

To facilitate the MBS process, defendant Mortgage Electronic
Registration System, Inc. (MERS) established a national electronic
registry (MERS Registry) to track servicing rights and mortgage

1

Defendants include MERSCORP Holdings, Inc.; Mortgage
Electronic Registration Systems, Inc.; Bank of America Corporation;
Bank
of
America,
N.A.;
Citigroup
Inc.;
Citibank,
N.A.;
CitiMortgage, Inc.; Deutsche Bank National Trust Company;
EverrBank; Goldman Sachs Mortgage Company; GS Mortgage Securities
Corp.; HSBC Bank USA, N.A.; JP Morgan Chase Bank N.A.; Morgan
Stanley ABS Capital I, Inc.; SunTrust Mortgage, Inc.; TCF National
Bank; Bank of New York Mellon; United Guaranty Corporation; U.S.
Bank N.A.; and Wells Fargo Bank N.A.
3

ownership.2

Id. ¶ 51.

MERS does not itself originate, assign, or

service mortgages, but instead charges a fee when participating
members transfer mortgages on the MERS Registry.

Id. ¶¶ 53-55.

As part of the MBS process, MERS members initiate residential
mortgage loans and record the transaction in the Minnesota county
where the property is located.

The MERS member then lists MERS as,

among other names, the “mortgagee of record” or as a nominee for
the participating MERS bank.

Id. ¶ 57.

Once this initial

recording occurs, MERS members can then transfer the ownership
rights of the mortgage, often as part of an MBS, to other MERS
members.

These transfers are recorded in the MERS Registry, but

not with the Minnesota county recorder where the property is
located.

Id. ¶ 61.

Minnesota Statutes § 507.34
In Minnesota, “[e]very conveyance of real estate shall be
recorded in the office of the county recorder of the county where
such real estate is situated.”

Minn. Stat. § 507.34.

The county

recorder collects a fee to index and record these conveyances. See
id. § 357.18. In the present dispute, plaintiffs Ramsey County and
Hennepin County (collectively, Minnesota Counties) allege that each

2

In re Mortgage Electronic Registration Systems
Litigation, 659 F. Supp. 2d 1368, 1370 n.6 (J.P.M.L.
provides a succinct description of how MERS operates.
4

(MERS)
2009),

mortgage transfer on the MERS Registry should have been filed with
the county recorder.

The MERS Defendants deny that such an

obligation exists.
On February 14, 2013, the Minnesota Counties filed a classaction complaint in Minnesota court seeking a declaration that the
MERS Defendants violated Minnesota Statutes § 507.34 by assigning
mortgages within the MERS Registry without recording the assignment
with the county recorder where the property is located.
Minnesota
nuisance.

Counties
The

also

MERS

allege

Defendants

unjust

enrichment

timely

removed,

and
and

The
public

move

to

dismiss.3

DISCUSSION
I.

Standing
Despite only moving to dismiss under Rule 12(b)(6), the MERS

Defendants argue that the Minnesota Counties lack standing to bring
this lawsuit.

As a result, before addressing the merits of the

action, the court must determine if subject-matter jurisdiction is
present. See South Dakota v. U.S. Dep’t of Interior, 665 F.3d 986,

3

Defendant TCF National Bank joins the MERS Defendants’
motion to dismiss, but also moves to dismiss on separate grounds.
See ECF No. 87. Additionally, defendant United Guaranty moves for
a more definite statement under Rule 12(e).
See ECF No. 90.
Because the court grants the MERS Defendants’ motion to dismiss,
the court need not address these motions.
5

989 (8th Cir. 2012) (describing standing as “a threshold inquiry”
(citation and internal quotation marks omitted)).
“To show Article III standing, a plaintiff has the burden of
proving: (1) that he or she suffered an injury-in-fact, (2) a
causal relationship between the injury and the challenged conduct,
and (3) that the injury likely will be redressed by a favorable
decision.” Ctr. for Special Needs Trust Admin., Inc. v. Olson, 676
F.3d 688, 697 (8th Cir. 2012) (citations and internal quotation
marks omitted).
failure

to

recording

Here, the Minnesota Counties allege that the

record

fees and

mortgage

transfers

inaccurate

county

resulted
land

in

a

in

Such

records.

loss

an

allegation is sufficient to establish Article III standing.

See,

e.g., Jackson Cnty., Mo. ex rel. Nixon v. MERSCORP, Inc., 915 F.
Supp.

2d

1064,

1068

(W.D.

Mo.

2013)

(declining

to

dismiss

substantially-similar lawsuit on standing grounds). Therefore, the
Minnesota Counties possess standing to bring this action, and the
court addresses their claims on the merits.
II.

Motion to Dismiss
To survive a motion to dismiss for failure to state a claim,

“‘a complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its face.’”
Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009)
(quoting Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).

“A

claim has facial plausibility when the plaintiff [has pleaded]

6

factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”
Iqbal, 129 S. Ct. at 1949 (citing Bell Atl. Corp. v. Twombly, 550
U.S. 544, 556 (2007)).

Although a complaint need not contain

detailed factual allegations, it must raise a right to relief above
the speculative level.

See Twombly, 550 U.S. at 555.

“[L]abels

and conclusions or a formulaic recitation of the elements of a
cause of action” are not sufficient to state a claim.

Iqbal, 129

S. Ct. at 1949 (citation and internal quotation marks omitted).
A.

Minnesota Statutes § 507.34

The Minnesota Counties first seek a declaration that MERS
members violated Minnesota law by transferring mortgages on the
MERS Registry without recording the conveyance in the Minnesota
county where the property was located.
Counties

cite

Minnesota

Statutes

§

In support, the Minnesota
507.34,

which

states,

in

relevant part, that
[e]very conveyance of real estate shall be
recorded in the office of the county recorder
of the county where such real estate is
situated; and every such conveyance not so
recorded shall be void as against any
subsequent purchaser in good faith and for a
valuable consideration of the same real
estate, or any part thereof, whose conveyance
is first duly recorded.
In response, the MERS Defendants argue that § 507.34 is permissive
and merely explains where a mortgage should be recorded if the
mortgagee wants to avail themself of the protections of § 507.34.

7

1.

Plain Language

The court’s goal in interpreting § 507.34 “is to ascertain and
effectuate

the

intention

of

the

legislature.”

Minn.

Stat.

§ 645.16. The court begins by “determin[ing] whether the statute’s
language, on its face, is ambiguous.”

Larson v. State, 790 N.W.2d

700, 703 (Minn. 2010) (citation and internal quotation marks
omitted).

“If the statute is clear and not ambiguous, then [the

court] appl[ies] its plain and ordinary meaning.”

A.A.A. v. Minn.

Dep’t of Human Servs., 832 N.W.2d 816, 819 (Minn. 2013) (citation
omitted). Conversely, if a statute is susceptible to more than one
reasonable interpretation, the court “look[s] beyond the statutory
language to determine legislative intent.” Id. (citation omitted).
“A statute is ambiguous if it is reasonably susceptible to
more than one interpretation.”

Eng’g & Constr. Innovations, Inc.

v. L.H. Bolduc Co., 825 N.W.2d 695, 710 (Minn. 2013) (citation and
internal quotation marks omitted).

“In construing the language of

a statute, [the court] give[s] words and phrases their plain and
ordinary meaning.”

Emerson v. Sch. Bd. of Indep. Sch. Dist. 199,

809 N.W.2d 679, 682 (Minn. 2012) (citations omitted).

“Multiple

parts of a statute may be read together so as to ascertain whether
the statute is ambiguous.”

Christianson v. Henke, 831 N.W.2d 532,

537 (Minn. 2013) (citation omitted).

In so doing, the court

interprets the statute in such a manner that renders no provision
meaningless. See State v. Wilson, 830 N.W.2d 849, 853 (Minn. 2013)

8

(citation omitted); see Am. Family Ins. Grp. v. Schroedl, 616
N.W.2d 273, 277 (Minn. 2000) (“We are to read and construe a
statute as a whole and must interpret each section in light of the
surrounding

sections

to

avoid

conflicting

interpretations.”

(citations omitted)).
The Minnesota Counties argue that § 507.34 creates a mandatory
recording obligation, as it states that every conveyance shall be
recorded.

See e.g., State by Beaulieu v. RSJ, Inc., 552 N.W.2d

695, 702 (Minn. 1996) (“The word ‘shall’ is mandatory .... [and
the] court is not at liberty to ignore the legislature’s plain and
unambiguous language.” (internal citation omitted)).
Defendants

respond

that

the

term

“shall”

cannot

be

The MERS
read

in

isolation and must be interpreted in conjunction with the remainder
of § 507.34.

Specifically, the MERS Defendants argue that the

“shall be recorded” language informs where the mortgage should be
recorded if the mortgagee wants to avoid the consequence - loss of
priority - of not recording the conveyance.

The court agrees and

determines that only the MERS Defendants’ proffered interpretation
of § 507.34 is a reasonable construction of the plain language of
the statute.
Under the Minnesota Counties’ interpretation, the court must
conclude its reading of the first sentence4 of § 507.34 after the

4

For ease of discussion, the court references the text prior
to the first semicolon in § 507.34 as “the first sentence” and the
(continued...)
9

“shall be recorded” text.

Such a reading of the statute is

improper, as it would excise the condition that the conveyance be
recorded in the county where the property is located.

See Stanton

v. Mazda 2001 VIN 4F2YU08121KM57063, 660 N.W.2d 137, 140 (Minn. Ct.
App. 2003) (“The legislature intends to give effect to all words of
a statute.” (citation omitted)).
Indeed, nothing in the statute suggests - either through text
or punctuation - that the phrase “shall be recorded” is to be
divorced from the surrounding text.

Instead, the legislature is

presumed to follow accepted standards of grammar, and the court
will not torture its reading of § 507.34 to effectively end the
sentence after the word “recorded.”

See United States v. Project

on Gov’t Oversight, 616 F.3d 544, 557 (D.C. Cir. 2010) (“There is
no punctuation or other reason to suggest” that the court was to
limit its interpretation of the statute to “services” when “[t]he
statute bars payment to an individual as compensation ‘for his
services as an officer or employee of the executive branch.’”
citation omitted)).
unambiguously

As a result, the first sentence of § 507.34

supports

the

MERS

Defendants’

proposed

interpretation.
Such a conclusion is reinforced by the second sentence of
§ 507.34, which states that “every such conveyance not so recorded

4

(...continued)
text after the first semicolon as “the second sentence.”
10

shall be void as against any subsequent purchaser in good faith and
for a valuable consideration.”
added).

In

other

words,

Minn. Stat. § 507.34 (emphasis

the

second

sentence

specifically

contemplates that not all conveyances will be recorded and outlines
the consequence of failing to do so.

If the recording of all

conveyances was mandatory, as the Minnesota Counties contend, such
language would be superfluous.

Under the Minnesota Counties’

interpretation, there would be no reason for the statute to explain
that a subsequent, bona-fide purchaser for value would obtain a
superior interest in the property. See Schroedl, 616 N.W.2d at 277
(“A statute should be interpreted, whenever possible, to give
effect to all of its provisions; no word, phrase, or sentence
should be deemed superfluous, void, or insignificant.” (citation
and internal quotation marks omitted)).

As a result, the court

concludes that the plain language of § 507.34 is unambiguous and
does not establish a duty to record all conveyances; rather, it
outlines where to record and explains the consequence - loss of
priority - of failing to do so.
2.

Persuasive Guidance

Even if the court had found the text of § 507.34 to be
ambiguous,

principles

of

statutory

construction

and Minnesota

caselaw indicate that the statute does not establish a mandatory
recording obligation.

The rules of statutory construction explain

that “[a] section of a statute ... should not be read in isolation

11

from the context of the entire act.”

Baker v. United States, 460

F.2d 827, 849 n.15 (8th Cir. 1972) (Lay, J., concurring in part and
dissenting in part) (second alteration in original) (citation
omitted); see Schroedl, 616 N.W.2d at 278 (“The operation of Minn.
Stat. § 65B.491 only becomes clear when it is read in conjunction
with

the

rest

of

the

No–Fault

Act.”

(citation

omitted)).

Consideration of § 507.34 in the larger context of the Recording
Act reinforces that the legislature did not intend to create a
mandatory recording obligation.
Indeed, a similar section of the Act - Minnesota Statutes
§ 507.235 - demonstrates that the legislature knows how to create
a mandatory recording obligation when it so desires.

Similar to

§ 507.34, section 507.235 mandates that “[a]ll contracts for deed
... shall be recorded.”

Minn. Stat. § 507.235, subdiv. 1.

Section

507.235, however, provides additional direction, such as who must
record the conveyance and when it must be recorded.

See id.

(explaining that vendee must record within four months). Moreover,
the statute provides that “[a] vendee who fails to record a
contract for deed ... is subject to a civil penalty ... equal to
two percent of the principal amount of the contract debt,” id. at
subdiv. 2, and explains that the municipality may “bring an action
to compel the recording” of an unrecorded conveyance.
subdiv. 5.

Id. at

As § 507.235 illustrates, when the legislature intends

to create a mandatory reporting obligation, it provides who shall

12

record the conveyance, when the conveyance shall be recorded, the
penalty for not recording the conveyance and includes a civil
enforcement mechanism.

By comparison, no such specifics are

present in § 507.34, which bolsters the conclusion that it does not
create a mandatory recording obligation.5

See Jama v. ICE, 543

U.S. 335, 341 (2005) (“We do not lightly assume that Congress has
omitted from its adopted text requirements that it nonetheless
intends to apply, and our reluctance is even greater when Congress
has shown elsewhere in the same statute that it knows how to make
such a requirement manifest.”).
Minnesota courts agree, explaining that “[t]he purpose of
[§ 507.34] is to protect those who purchase real estate in reliance
upon the record.” Claflin v. Commercial State Bank of Two Harbors,
487 N.W.2d 242, 248 (Minn. Ct. App. 1992) (citation omitted); see
Citizens State Bank v. Raven Trading Partners, Inc., 786 N.W.2d
274, 278 (Minn. 2010) (“The purpose of the Minnesota Recording Act
is to protect recorded titles against the gross negligence of those
who fail to record their interests in real property.” (citation

5

Such a conclusion is buttressed by the title of § 507.34,
“Unrecorded Conveyances Void in Certain Cases,” which contains no
indication that the section creates a mandatory recording
obligation. See Nw. Airlines, Inc. v. Friday, 617 N.W.2d 590, 595
(Minn. Ct. App. 2000) (using title of statute to discern
legislative intent). But see Minn Stat. § 645.49 (“The headnotes
printed in boldface type before sections and subdivisions in
editions of Minnesota Statutes are mere catchwords to indicate the
contents of the section or subdivision and are not part of the
statute.”).
13

omitted)); Miller v. Hennen, 438 N.W.2d 366, 369 (Minn. 1989)
(same).

Indeed, the Minnesota Supreme Court explains:
The Recording Act creates no obligations;
rather, it uses recording to resolve disputes
between parties who have no contractual
relationship, but who lay claim to the same
title ....
By contrast, the foreclosure by
advertisement statutes prescribe mandatory
requirements which must be met for a party to
proceed under the statutes.

Jackson v. Mortg. Elec. Registration Sys., Inc., 770 N.W.2d 487,
495 (Minn. 2009) (emphasis added) (citations omitted).
The
Jackson

foreclosure-by-advertisement
mandate

that

any

party

statutes

instituting

referenced
a

by

non-judicial

foreclosure must confirm that the “mortgage has been recorded and,
if it has been assigned, that all assignments thereof have been
recorded.”

Minn.

Stat.

§

580.02(3).

Like

the

language

of

§ 507.235, Jackson illustrates that the legislature knows how to
enact a mandatory recording obligation, and the court will not read
such a requirement into § 507.34 when none exists.6
In response, the Minnesota Counties argue that Jackson is
unpersuasive, as it did not concern mortgage assignments but only
analyzed whether MERS was required to record assignments of the
promissory note prior to commencing a foreclosure by advertisement.

6

The court also notes that the MERS Registry is implicitly
approved by Jackson. See 770 N.W.2d at 494 (“By passing the MERS
statute [Minn. Stat. § 507.413], the legislature appears to have
given approval to MERS’ operating system for purposes of
recording.”).
14

See Jackson, 770 N.W.2d at 493.

In other words, the Minnesota

Counties argue that Jackson’s discussion of the Recording Act is
dicta and is inapplicable to any analysis of § 507.34.

A court

sitting in diversity, however, is tasked with “predict[ing] how the
Supreme Court of Minnesota would rule,” Friedberg v. Chubb & Sons,
Inc., 691 F.3d 948, 951 (8th Cir. 2012) (citation omitted), and
even if dicta, Jackson provides insight as to how Minnesota’s
highest court would interpret § 507.34.

See U.S. Fid. & Guar. Co.

v. Louis A. Roser Co., 585 F.2d 932, 939 (8th Cir. 1978) (providing
that “a recent decision of the Supreme Court of Minnesota contains
dicta

which

is

instructive”);

Michael-Curry

Cos.

v.

Knutson

S’holders Liquidating Trust, 434 N.W.2d 671, 675 (Minn. Ct. App.
1989) (relying on, among other persuasive authority, dicta from a
Minnesota Supreme Court opinion).

In sum, based on an analysis of

its plain language, canons of construction and treatment by other
courts in Minnesota, the court concludes that § 507.34 does not
create a mandatory recording obligation.
Counties

declaratory

judgment

claim

Therefore, the Minnesota

fails,

and

dismissal

is

warranted.
B.

Remaining Claims

The Minnesota Counties also raise claims for unjust enrichment
and public nuisance.

These claims, however, are premised on the

Minnesota Counties’ argument that § 507.34 creates a mandatory
recording

obligation.

For

the

15

reasons

already

stated,

this

argument fails.

Therefore, dismissal of these claims is also

warranted.
CONCLUSION
Accordingly, based on the above, IT IS HEREBY ORDERED that the
defendants’ motion to dismiss [ECF No. 72] is granted.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated:

August 26, 2013
s/David S. Doty
David S. Doty, Judge
United States District Court

16