The opinion of the court was delivered by: Joyner, C.J.
Before the Court is the Motion to Dismiss of the Defendants, Mortgage Electronic Registration Systems, Inc. ("MERS") and MERSCORP, Inc. (ECF No. 6). For the reasons set forth in this Memorandum, the Motion is granted in part and denied in part.
The Plaintiff, the Montgomery County, Pennsylvania, Recorder
of Deeds, brings this putative class action, on behalf of herself and a proposed class of all similarly situated county recorder's offices in Pennsylvania, seeking, through various legal and equitable theories, to compel the Defendants to record mortgage assignments past, present, and future and pay the associated fees. (See Compl. ¶¶ 16-17.) The gravamen of the Plaintiff's claims is that the Defendants have created a private system for tracking conveyances of interests in land which bypasses the statutorily created recording system in a manner incompatible with Pennsylvania law. See id. ¶¶ 16-17, 23-29, 34-36.
A. MERS and the Recording System The typical residential mortgage finance transaction results in two legally operative documents: (1) a promissory note, a negotiable instrument which represents the borrower's repayment obligation over the term of the loan; and (2) a mortgage, representing the security interest in certain property which entitles the holder of the note to foreclose on the property in the event of default on the note. See Phyllis K. Slesinger & Daniel Mclaughlin, Mortgage Electronic Registration System, 31 Idaho L. Rev. 805, 808 (1995). MERS enters a mortgage finance transaction when the lender and the borrower name MERS, in the mortgage instrument, "as the mortgagee (as nominee for the lender and its successors and assigns)." In re Mortgage Elec. Reg. Sys. (MERS) Litig. (In re MERS), 659 F. Supp. 2d 1368, 1370 n.6 (J.P.M.L. 2009).
The attendant promissory note is sold on the secondary mortgage market and may, over its term, have many owners. Id. Sale of the note onto the secondary mortgage market principally takes two forms. In one, relatively straightforward, transaction, a lender who retains a note as part of its own loan portfolio transfers the note to another party for that party to hold for its own account or portfolio. See Adam J. Levitin & Tara Twomey, Mortgage Servicing, 28 Yale J. on Regulation 1, 11-13 (2011). In the other, a more complex process called securitization, the note is transferred, along with many other notes, through several different entities into a special purpose vehicle, typically a trust; the trust then issues securities backed by the trust corpus, i.e., the notes, to investors. Id. at 13-14; (see also Compl. ¶¶ 23-29.) Regardless of the secondary market route which the note takes, MERS remains the named mortgagee as "nominee"*fn2 for the subsequent owners of the note as long as the note is held by a MERS member.*fn3 In re MERS, 659 F. Supp. 2d at 1370 n.6.
Before the formation of MERS, "secondary market investors generally requir[ed] recorded assignments for most transfers of prior ownership interests [in security interests, i.e. mortgages]." Slesinger & Mclaughlin, 31 Idaho L. Rev. at 808. This system entailed substantial administrative burdens on secondary mortgage market participants. Id. at 809-10.
As a result, in 1993 "the [Mortgage Bankers' Association ("MBA")] InterAgency Technology Task Force . . . published a 'white paper' at the MBA's Annual Convention that describes an electronic book entry system for the residential mortgage industry." Id. at 810. At the time, among other benefits to the mortgage industry, MERS proponents claimed that "[o]nce MERS is established as the mortgagee of record, all subsequent transfers of ownership would be recorded electronically, eliminating the need to physically prepare, deliver, record, and track assignment documents. The estimated cost savings for assignment processing for a single transfer would be an average of $45.50 per loan." Id. at 812-13.
The Defendants, along with the MERS members, developed MERS along these lines. So, instead of effecting formal assignments of a mortgage when MERS members transfer the accompanying note between one another, the MERS members simply register the change in beneficial ownership in the MERS electronic database.*fn4
(Compl. ¶ 17.) MERS does not oversee the process of updating ownership records in any manner, leaving that task to the members who own the beneficial interests in the promissory notes. Id. Some 65 million mortgages in the United States name MERS as original mortgagee as nominee for the lender, including at least 130,000 in Montgomery County. Id. ¶ 16.
The Plaintiff, acting in her official capacity as the
Recorder of Deeds of Montgomery County, Pennsylvania, initiated this lawsuit on November 7, 2011. In her complaint, she asserts that the Pennsylvania recording statute, 21 Pa. Stat. § 351, requires that all mortgage assignments be recorded (Compl. ¶¶ 11, 25), and that the beneficial owners of mortgages avoid recorded assignments of mortgages in favor of tracking changes in ownership on the system created and administered by the Defendants, id. ¶¶ 26-28. Accordingly, the Plaintiff pleads, "MERS . . . was formed for the express purpose of avoiding fees traditionally due to county recorders of deeds when sales or assignments of mortgages were made." Id. ¶ 15. She further pleads that the absence of these recorded assignments as part of the Defendants' avoidance of recording fees both deprives her office and Montgomery County of revenue needed to support vital public functions, id. ¶ 21, and creates deficient property records, id. ¶ 29.
Based on these factual allegations, the Plaintiff asserts claims for (1) "negligent and/or willful violation of [21 Pa. Stat. § 351]," id. ¶¶ 34-36, (2) civil conspiracy, id. ¶¶ 37-40, (3) unjust enrichment, id. ¶¶ 41-45, and (4) declaratory and injunctive relief against the Defendants for failing to record mortgage assignments pursuant to 21 Pa. Stat. § 351, id. ¶¶ 46-53. The Plaintiff also pleads the factual predicates to assert these claims, pursuant to Federal Rule of Civil Procedure 23, on behalf of a class composed of "[a]ll Pennsylvania counties where Defendants from 1995 to the present, have failed to record mortgage assignments and pay all associated recording fees for such recording of mortgages." Id. ¶ 31; see also id. ¶¶ 30-33.
C. Other Actions by Recorders Based on Failure to Record Assignments
Various county officials across the country have filed similar actions, asserting similar theories of recovery, against the Defendants, as well as against certain financial institutions who are MERS members.*fn5 Depending on state law relating to mortgages and the wording of the individual state's recording statutes, some of these actions have been dismissed. See, e.g., Plymouth Cnty., Iowa ex rel. Raymond v. MERSCORP, Inc., ___ F. Supp. 2d ___, No. C 12--4022--MWB, 2012 WL 3597430, at *11 (N.D. Iowa Aug. 21, 2012); Fuller v. Mortgage Elec. Registration Sys., Inc., ___ F. Supp. 2d ___, No. 3:11--CV--1153--J--20MCR, 2012 WL 3733869, at *18 (M.D. Fla. June 27, 2012); Christian Cnty. Clerk ex rel. Kem v. Mortgage Elec. Registration Sys., Inc., No. 5:11-CV--00072--M, 2012 WL 566807, at *5 (W.D. Ky. Feb. 21, 2012). Others are proceeding. See, e.g., Dallas Cnty., Tex. v. MERSCORP, Inc., Civ. No. 3:11-cv-2733-O, ECF No. 65 (N.D. Tex. May 25, 2012) (order granting in part and denying in part defendants' motion to dismiss); Geauga Cnty. Prosecuting Attorney v. MERSCORP, Inc., Case No. 11M001087 (Ohio Ct. Com. Pleas, Geauga Cnty. filed Oct 13, 2011).
In Pennsylvania, Washington County has initiated a similar lawsuit against U.S. Bank, N.A., in the Court of Common Pleas of Washington County. U.S. Bank attempted to remove the action to the United States District Court for the Western District of Pennsylvania, but, upon Washington County's motion, Judge Bissoon remanded the action back to state court. County of Washington, Pa. v. U.S. Bank Nat'l Ass'n, Civ. No. 2:11-cv-1405-CB-CRE, ECF No. 40 (W.D. Pa. Sept. 5, 2012) (order adopting report and recommendation of Magistrate Judge Eddy and remanding the action to state court); see also County of Washington, Pa. v. U.S. Bank Nat'l Ass'n, Civ. No. 2:11-cv-1405-CB-CRE, 2012 WL 3860474, at *16-27 (W.D. Pa. Aug. 17, 2012) (report and recommendation recommending remand).
D. The Defendants' Motion to Dismiss The Defendants have moved to dismiss, arguing principally that the Pennsylvania recording statute, 21 Pa. Stat. § 351, does not require that mortgage assignments be recorded and that, even if it did, no private right of action exists to enforce the requirement. (Def.'s Mem. at 8-22.) The Defendants also argue that the Plaintiff may not recover damages based on the Defendant's failure to record mortgage assignments, id. at 22-23, and that the Plaintiff has not stated a cause of action for unjust enrichment or for declaratory or injunctive relief, id. at 23-27.
When considering a Rule 12(b)(6) motion to dismiss, the district court must "accept as true the factual allegations in the complaint and all reasonable inferences that can be drawn therefrom." Krantz v. Prudential Invs. Fund Mgmt., 305 F.3d 140, 142 (3d Cir. 2002) (quoting Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996)). In so doing, we must consider whether the complaint has alleged enough facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009). Although the Court must accept well-pleaded facts as true, it need not credit "bald assertions" or "legal conclusions." In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429 (3d Cir. 1997). "The defendant bears the burden of showing that no claim has been presented." Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005).
In this diversity action, Erie R. Co. v. Tompkins, 304 U.S. 64 (1938) and its progeny require us "to follow state law as announced by the highest state court." Wayne Moving & Storage of N.J. Inc. v. School Dist. of Philadelphia, 625 F.3d 148, 154 (3d Cir. 2010) (internal quotations omitted). Because the Pennsylvania Supreme Court has not passed on several of the specific questions posed here, "[we] must predict how the state's highest court would resolve the issue." Id. (internal quotations omitted). "[W]e must consider relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show how the highest court in the state would decide the issue at hand." Id. (internal quotations omitted).
The parties have principally focused their briefing on two questions: (1) whether the Pennsylvania recording statute, 21 Pa. Stat. § 351, requires recordation of all conveyances, and (2) if so, whether the Legislature intended to create a right of action to enforce that requirement in the same statute. We conclude that the recording statute does require recordation of all conveyances. We further conclude that we need not reach the question whether the recording statute creates an implied right of action to enforce this requirement because the Legislature intended the quiet title action to permit such relief. And, because we conclude that the Plaintiff has pleaded sufficient facts to state a quiet title claim, we deny the motion to dismiss on these bases. We also conclude that the Plaintiff has pleaded sufficient facts to proceed on her unjust enrichment claim but not on her civil conspiracy claim; the civil conspiracy claim is therefore dismissed.
A. 21 Pa. Stat. § 351 Requires Recordation of All Conveyances The
Defendants argue that the Plaintiff fails to state a
claim because the Pennsylvania recording statute, 21 Pa. Stat. § 351,
does not make recording of conveyances compulsory.*fn6
We predict that the Pennsylvania Supreme Court would conclude that the
statute does make recording of conveyances compulsory,*fn7 ...