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Delaware County v. Merscorp, Inc.

United States District Court, E.D. Pennsylvania

September 15, 2014

MERSCORP, INC., et al., Defendants


C. DARNELL JONES, II, District Judge.

Pending before the court is a motion to remand filed by plaintiff, (Doc. No. 42) which, as discussed further below, requires the court to consider whether to permit joinder of defendant Customers Bancorp. After a thorough review of the record, the court will permit joinder and remand to the Court of Common Pleas, Delaware County.


Because plaintiff's motion to remand raises a primarily procedural issue, the court will only briefly recount the facts of this case. MERSCORP is a privately held company formed in 1995 by constituents of the mortgage-lending industry. (Am. Compl. at ¶28.) In 1998, it incorporated MERS to "serve[] as nominee for beneficial owners of mortgage loans." ( Id. at ¶30.) MERSCORP also developed the MERS® system, a "national electronic registry" for registering and transferring mortgage interests. ( Id. at ¶3.) MERS members (financial institutions that pay an annual membership fee)[1] are able to utilize the MERS® system to track beneficial interests in mortgages recorded in the MERS system.

The internal workings of MERS are relatively simple. When a MERS member obtains a financial interest in a mortgage instrument, the interest is recorded as "MERS" in local land records. ( Id. at ¶50.) Any subsequent transfer of that interest to other MERS members is only recorded in the MERS system. ( Id. at ¶¶48, 51, 52, 53.) In fact, MERS prohibits its members from publicly recording any assignments amongst MERS members.[2] ( Id. at ¶57.) As plaintiff explains:

Once MERS becomes the beneficiary of record as nominee, it remains such when beneficial ownership interest in the promissory note or servicing rights are transferred by one MERS Member to another, and it tracks such transfers electronically on the MERS® System. As long as the sale of the note involves a member of MERS, MERS remains the beneficiary of record on the deed of trust and continues to act as nominee for the new beneficial owner. If a member is no longer involved with the loan after it is sold, an assignment of the lien from MERS to the non-MERS member is recorded in the county where the real properly is located and the mortgage loan is deactivated from the MERS® System.

( Id. at ¶52.)

Access to the MERS system is restricted to members, so nonmembers are unable to determine which MERS member is the actual beneficial owner of any given mortgage interest. ( Id. at ¶32) In other words, the only transaction that is visible to members of the public is the initial induction into the MERS system; after that, all subsequent transactions amongst MERS members are conducted behind the MERS "curtain."[3] ( Id. at ¶¶48, 51, 52, 53.) MERS remains a proxy in the public land records for the true beneficiary as long as the mortgage interest is held by a MERS member. ( Id. )[4] Therefore, the MERS system allegedly "creat[es] gaps in the chain of title and depriv[es] county recorders of the requisite funds, in the form of recording fees, to protect the integrity of the public resource." ( Id. at ¶47.)

On October 11, 2013, plaintiff filed a complaint in the Court of Common Pleas, Delaware County, alleging violations of 21 P.S. § 351, Pennsylvania's recording statute.[5] (Doc. No. 1.) It appears from the original complaint as though plaintiff was under the impression that one of the named defendants, Sovereign Bank, was a citizen of Pennsylvania.[6] (Compl. at 9.) On November 8, 2013, defendants removed the case from state court after showing that Sovereign Bank was no longer a Pennsylvania citizen, thereby demonstrating complete diversity of the parties. (Doc. No. 1.) On December 17, 2013, defendants filed a motion to dismiss. (Doc. No. 36.) Plaintiff responded by filing an amended complaint on January 7, 2014, apparently under Federal Rule of Civil Procedure 15(a)(1)(B). (Doc. No. 41.) The amended complaint added a non-diverse party - Customers Bancorp - as well as a claim for quiet title and additional allegations supporting plaintiff's remaining claims. ( Id. ) One day later, plaintiff moved to have this matter remanded to state court. (Doc. No. 42.)


As an initial matter, it is worth clarifying the procedural posture of plaintiff's motion. Plaintiff filed an amended complaint prior to filing the present motion to remand, which would normally be permitted without leave of court because it was filed within 21 days of service of defendant's motion to dismiss. Fed.R.Civ.P. 15(a)(1). However, because the amendment would ultimately divest this court of jurisdiction, the court must first decide whether to permit joinder of the proposed non-diverse party. 28 U.S.C. § 1447(e) ("[i]f after removal the plaintiff seeks to join additional defendants whose joinder would destroy subject matter jurisdiction, the court may deny joinder, or permit joinder and remand the action to the State court.").

While the Third Circuit has yet to speak on the matter, courts in this district have analyzed four factors - collectively known as the Hensgens factors - to determine whether to permit joinder. John Doe #4 v. Soc'y for Creative Anachronism, Inc., No. 07-CV-1439, 2007 WL 2155553, *3 (E.D. Pa. July 25, 2007) (citing, Hensgens v. Deere, Co. , 833 F.2d 1179, 1182 (5th Cir. 1987)). These factors are, "(1) the extent to which the purpose of the amendment is to defeat federal jurisdiction; (2) whether plaintiff has been dilatory in asking for amendment; (3) whether plaintiff will be significantly injured if amendment is not allowed; and (4) any other factors bearing on the equities." Id. (citation omitted). The purpose of the Hensgens factors is "to balance the defendant's interests in maintaining the federal forum with the competing interests of not having parallel lawsuits." Stewart v. Wal-Mart Distribution Center , No. 12-CV-4958, 2013 WL 1482217, *2 (E.D. Pa. April 11, 2013) (internal quotations omitted). The court will address each factor in turn.

I. The Purpose for the Joinder Was Not to Defeat Jurisdiction

Plaintiff's purpose in amending the complaint does not appear to be solely or even primarily to obtain remand to state court. Plaintiff has represented to this court on the record that it expects to add a number of Pennsylvania banks to this lawsuit, and the nature of this case corroborates this expectation. Both the original complaint and the amended complaint contain causes of action against MERS and its member banks. According to plaintiff, thousands of banks are members of the MERS system, which makes it highly likely that a number Pennsylvania banks use the MERS system to conduct business in Delaware County. Furthermore, as the parties have conceded, plaintiff's original complaint named Sovereign Bank, a party that plaintiff believed to be a Pennsylvania citizen. (Compl. at 9.) Of course, defendants dispelled the notion that Sovereign was a Pennsylvania bank and removed the case to federal court, but the amended complaint added another Pennsylvania bank - Customers Bancorp. Defendant does not seriously contend that plaintiff could not have included Customers Bancorp to its initial complaint while this case was in state court, thereby preventing its removal in the first place. In sum, it appears that, while this matter will ultimately include a large number of Pennsylvania entities, plaintiff initially included only one Pennsylvania bank as a placeholder in the expectation of adding many more after ...

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