Burr & Forman

02.22.2013   |   Blog Articles, Consumer Finance Litigation, Kentucky

Sixth Circuit Denies County Clerks the Right to Sue MERS and its Member Institutions for Violations of Recording Statutes

The Sixth Circuit issued an opinion last week in Christian County Clerk v. Mortgage Electronic Registration Systems, Inc., et al., 2013 WL 565198 (6th Cir. Feb. 15, 2013), addressing whether the district court properly dismissed two Kentucky county clerks’ complaint against MERS and fifteen financial institutions for violations of state recording statutes. The subject complaint alleged that the Defendants, by establishing and participating in the MERS system, violated Kentucky law by failing to record mortgage assignments and, more specifically, created MERS “to enable its members to avoid recording assignments and paying the associated recording fees to the county clerks.” Id. at 1-2. The clerks sought damages to recover unpaid recording fees and an injunction ordering the Defendants to cease their practice of not recording mortgage assignments. Id. Without ruling on the merits of the underlying claims, the district court dismissed the action under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim, holding that the clerks had standing to bring the action, but did not have a private cause of action under Kentucky law. Id. The Court first addressed whether the clerks had standing to bring suit. Id. at 2. The Defendants argued that the clerks lacked standing because they were public officers entitled to recover fees only for services actually rendered under Kentucky law, and therefore had only an official, but no personal stake in the litigation and suffered no injury in fact. Id. at 3. The Sixth Circuit disagreed, stating that although the Supreme Court has generally held that public officials lack standing to challenge the constitutional validity of a statute when their interest in the litigation is merely official rather than personal, here, the Clerks alleged the Defendants’ acts or omission deprived them of fees and interfered with their duties as custodians of property records, an alleged invasion of their financial and job interests that could be redressed by a favorable judicial decision. As such, the Court held that the clerks had standing to sue, though it noted that only one other district court had found a court clerk’s similar allegations sufficient to confer constitutional standing. Despite their standing to bring suit, the Sixth Circuit held that the clerks had no private right of action to sue for violations of Kentucky’s recording requirements. Id. at 4. Because the Kentucky recording statutes do not expressly provide a private right of action, the clerks attempted to rely upon Kentucky’s negligence per se statute which “creates a private right of action in a person damaged by another person’s violation of any statute that provides no civil remedy if the person damaged is within the class of persons the statute intended to be protected.“ Id. (emphasis added). The Court held that Kentucky’s recording statutes were only intended to protect “(1) existing lienholders and lenders who record their security interests in the land to give notice of their secured status, (2) prospective lienholders and purchasers, and (3) property owners and borrowers whose loans have been satisfied.” Id. at 5. The Court rejected the clerks’ argument that they fell within the protected class as officers charged with maintaining property records, stating: “the Kentucky legislature provided no indication that it enacted the recording statutes to protect county clerks.” Id. at 6. As such, the Court held that the clerks had no private right of action for alleged violations of the recording statutes and affirmed the lower court’s dismissal of their complaints. For more information on consumer finance litigation topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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