Putative Class Action Against MERS Survives Dismissal: Pennsylvania Recording Statute Held to Be Mandatory

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A federal district court in Pennsylvania has ruled that a putative class action against MERSCORP, Inc. and Mortgage Electronic Registration Systems, Inc. (“MERS”) for failure to record mortgage assignments survives Rule 12(b)(6) dismissal. See Montgomery County, Pennsylvania, Recorder of Deeds v. MERSCORP, Inc., Case No. 11-cv6968 (E.D. Pa., October 19, 2012).

The action was brought by Montgomery County Recorder of Deeds Nancy J. Becker, who, like many county recorders throughout the country, alleged in a complaint that MERS created a private system for tracking conveyances of land that bypasses the statutory recording system set forth in state law. Becker purported to state claims for willful violation of the state recording statute, civil conspiracy, unjust enrichment, and declaratory and injunctive relief.

Chief Judge Joyner of the Eastern District of Pennsylvania issued a decision holding that (1) Pennsylvania’s mortgage recording statute is mandatory, and (2) while not specifically pled, Becker’s claim survives as a quiet title action (as well as one for unjust enrichment). The court’s finding that the recordation of mortgage assignments is mandatory is a relatively uncommon conclusion among the courts that have addressed the question in similar cases in other states.

However, Judge Joyner observed that 21 Pa. Stat. 351, the recording statute, contains both the obligatory language “shall be recorded,” as well as the heading “NECESSITY OF RECORDING AND COMPULSORY RECORDING,” and also noted that other portions of Pennsylvania law dealing with recording of documents are written permissively (e.g., “may” with heading “INSTRUMENTS SUBJECT TO RECORD”). As a result, the court concluded, the decision to publicly record a transfer in Pennsylvania is not discretionary.

After finding the recordation statute mandatory, the court proceeded to conclude that “Pennsylvania law permits any person in any manner interested in a conveyance, such as a mortgage assignment, to bring a quiet title action under Pennsylvania Rule of Civil Procedure 1061(b)(3) to compel [recordation].” In holding that Becker had adequately pled an interest sufficient to confer standing to bring a quiet title action, after a lengthy recitation of legislative history the court noted, that the predecessor Act to the quiet title provision of the Civil Rules “refers to the relevant interests as in the transactions documented in the writings to be recorded, not necessarily in the land at issue.” As a result, because the court found that Becker had pled an interest in the recording fees associated with assignments that are recorded pursuant to the statute, she could proceed with her claim.

The Pennsylvania decision is something of an anomaly, as numerous similar cases brought throughout the country have been dismissed for failure to state a claim. See, e.g., Fuller v. Mortg. Elec. Registration Sys., Inc., 2012 WL 3733869 (M.D. Fla. June 27, 2012); Christian County Clerk v. Mortg. Elec. Registration Sys., Inc., 2012 WL 566807 (W.D. Ky. Feb. 21, 2012); Plymouth County, Iowa v. MERSCORP, Inc., 2012 WL 3597430 (N.D. Iowa Aug. 21, 2012); Brown v. MERS, Inc., No. 6:11-cv-06070 (W.D. Ark. Sept. 17, 2012); Bates v. Mortg. Elec. Registration Sys., Inc., 2011 WL 892646 (E.D. Cal. Mar. 11, 2011), aff’d, 2012 WL 4054142 (9th Cir. Sept. 17, 2012); Bates v. Mortg. Elec. Registration Sys., Inc., 2011 U.S. Dist. LEXIS 40356, at *9-10 (D. Nev. Mar. 30, 2011), aff’d, 2012 WL 4058052 (9th Cir. Sept. 17, 2012); Bates v. Mortg. Elec. Registration Sys., Inc., No. 2010 CA 002993 (D.C. Super. May 7, 2012), appeal docketed, No. 12-cv-834; Bates v. Am. Lending Alliance, No. 10-1-0160-01 (Haw. Cir. Ct. Mar. 12, 2012), appeal docketed, No. CAAP-12-660; Bates v. Mortg. Elec. Registration Sys., Inc., No. 49D12-0911-CT-051734 (Ind. June 22, 2012), appeal docketed, No. 49 A 02 1207-CT-591; Bates v. Mortg. Elec. Registration Sys., Inc., No. MCRE-1010 (Tenn. Ch. Apr. 4, 2012), appeal docketed, No. M-2012-993-COA-R3-CV.

A putative class action on substantially the same grounds is currently pending against MERS in Geauga County, Ohio, where similar legal issues are expected to be litigated with respect to Ohio law. See, State of Ohio, ex rel. Joyce v. MERSCORP, Inc., Case No. 11M001087 (Geauga County, Ohio).