Antitrust Law Daily Wrap Up, RICO—5th Cir.: Dismissal of land recording clerks’ claims based on alleged violations of Trust Indenture Act against mortgage companies upheld, (Mar 6, 2014)
Law Firms Mentioned:Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C. | Blume, Faulkner, Skeen & Northam, P.L.L.C. | Burr & Foreman, L.L.P. | Carpenter, Lipps & Leland, L.L.P. | Goodwin Procter, L.L.P. | Kuchler, Polk, Schell, Weiner & Richeson, L.L.C. | McGlinchey Stafford, P.L.L.C. | Snell & Wilmer, L.L.P.
Organizations Mentioned:Baker Donelson | Bank of America | Bank of New York Mellon Corp. | Burr & Forman, LLP | Carpenter Lipps & Leland, LLP | Citi Mortgage, Inc. | Deutsche Bank, A.G. | GMAC Residential Funding Corp. HSBC Finance Corp. | Goodwin Procter, LLP | HSBC Bank USA, N.A. | HSBC Bank USA, NA | HSBC Finance Corp. | J.P. Morgan Chase Bank, N.A. | JPMorgan Chase Bank, NA | LaSalle Bank, N.A. | McGlinchey Stafford, PLLC | Merrill Lynch Credit Corp. | Nationwide Advantage Mortgage Co. | Snell & Wilmer, LLP | Suntrust Mortgage, Inc. | U.S. Bank | United Guaranty Corp. | Wells Fargo Bank, N.A. | Wells Fargo Bank, NA
By Linda O’Brien, J.D., LL.M.
The clerks of court who maintained local land recording records failed to state a Racketeer Influenced and Corrupt Organizations Act (RICO) claim against several financial institutions based on an alleged conspiracy to violate the federal Trust Indenture Act of 1939 (TIA) because they failed to adequately plead a RICO injury the land recording clerks business or property, the U.S. Court of Appeals in New Orleans has ruled. Thus, the district court dismissal was affirmed (Welborn v. Bank of New York Mellon Corp., March 5, 2014, Per Curiam.).
Clerks of the court are the officials responsible for maintain local land recording records. Their duties include recording mortgages under the state recording statutes and assess fees for this public service. The clerks of forty-seven Louisiana parishes filed suit against fourteen financial institutions alleging violations of the RICO Act. Specifically, the clerks alleged that the financial institutions are all members of Mortgage Electronic Registration Systems, Inc. (MERS) registration system. MERS records mortgages in its name when its members originate a mortgage. When a member transfers a mortgage to another member, MERS represents that it is the nominee or beneficial owner, and thus that the assignment of the mortgage does not have to be recorded in the public land records in order to protect the priority of the mortgage lien. Through this process, MERS members avoid paying recording fees to the clerks. The clerks claim that the fraudulent statements about the legal effect of MERS constitute federal mail or wire fraud. The financial institutions’ motion to dismiss for failure to state a claim was granted by the district court.
The clerks argued that the TIA required the financial institutions to perfect and maintain the priority of the mortgages securing their mortgage-backed securities, and that this requirement included the duty to properly record each mortgage and its subsequent conveyances in order to maintain priority of the lien under the Louisiana Public Records Doctrine. A claim under the RICO statute requires that there is an injury to any person’s business or property and the injury must be “by reason of” the alleged RICO violation. For governments that sue under RICO, the injury refers to commercial interests or enterprises.
In determining that there was insufficient evidence of an injury to the clerks’ business or property, the court noted that the clerks must establish that the injured business or property was a commercial activity and not just the general economy or the government’s ability to carry out governmental functions. The injuries alleged by the land recording clerks - the loss of recording fees and general damage to the integrity of public records - do not arise from a commercial activity; rather from the provision of a public service, according to the court. The state recording systems are grounded in the public policy of providing notice of title and were not created to serve a revenue-generating function of the states. Therefore, the appellate court determined that the clerks failed to state a legally cognizable claim since they could not allege an injury to business or property under RICO.
The case is No. 13-30103.
Attorneys: Richard D. Faulkner (Blume, Faulkner, Skeen & Northam, P.L.L.C.) for Doug Welborn. Thomas M. Hefferon (Goodwin Procter, L.L.P.) and Anthony Joseph Rollo, Jr. (McGlinchey Stafford, P.L.L.C.) for Bank Of New York Mellon Corp. and Bank Of America. Kent Andrew Lambert (Baker, Donelson, Bearman, Caldwell & Berkowitz, P.C.) for Citi Mortgage, Inc. Gregory J. Marshall (Snell & Wilmer, L.L.P.) and John R. Chiles (Burr & Foreman, L.L.P.) for HSBC Finance Corp. Michael Hiram Carpenter (Carpenter, Lipps & Leland, L.L.P.) and Mark Edward Best (Kuchler, Polk, Schell, Weiner & Richeson, L.L.C.) for Nationwide Advantage Mortgage Co.
Companies: Bank of New York Mellon Corp.; Bank of America; Citi Mortgage, Inc.; GMAC Residential Funding Corp. HSBC Finance Corp.; Merrill Lynch Credit Corp.; Nationwide Advantage Mortgage Co.; Suntrust Mortgage, Inc.; United Guaranty Corp.; Wells Fargo Bank, N.A.; Deutsche Bank, A.G.; U.S. Bank; J.P. Morgan Chase Bank, N.A.; HSBC Bank USA, N.A.; LaSalle Bank, N.A.
Cases: RICO LouisianaNews MississippiNews TexasNews