Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—8th Cir.: Failure to record mortgage assignments did not violate Arkansas law, (Jan 3, 2014)

By Jody Coultas, J.D.

A circuit clerk failed to state an Arkansas Deceptive Trade Practices Act (DTPA) claim against Mortgage Electronic Registration Systems, Inc. (MERS) for failure to record mortgage assignments, the U.S. Court of Appeals in St. Louis has held (Brown v. Mortgage Electronic Registration Systems, Inc., December 31, 2013, Shepherd, B.). A federal district court’s dismissal of the claim was affirmed.

With MERS, initial mortgage loans are recorded with the circuit clerk, fees are paid, and MERS is listed as the mortgagee of record. When an interest in the mortgage is transferred among MERS members, the MERS system tracks the assignments and MERS remains the mortgagee of record in the county property records. Subsequent assignments are not recorded, and no recording fees are paid. The circuit clerk alleged that this use of the MERS system violated the DTPA and filed suit against MERS, various originators of loans, and various servicers of loans.

A district court dismissed the DTPA claim, holding that it failed because it rested on the nonexistent duty to record mortgage assignments in Arkansas.

The district court did not err in refusing to dismiss or remand the DTPA claim after dismissing the Clerk’s illegal-exaction class action claim. The district court found that the Clerk alleged a class action under the Class Action Fairness Act (CAFA), that the class for the illegal-exaction claim included all Arkansas taxpayers, and that the court had jurisdiction under the CAFA. District courts are required to exercise supplemental jurisdiction over claims “that are so related to [the] claims in the action within such original jurisdiction that they form part of the same case or controversy.” A court may decline jurisdiction when the district court has dismissed all claims over which it has original jurisdiction. The district court dismissed the federal claims and the state-law claims in the same order. It would have been a waste of judicial resources to remand the case. It was both fair to the parties and a proper application of comity for the district court to decide the issue.

Dismissal of the DTPA claim was appropriate, according to the court. The DTPA prohibits deceptive and unconscionable trade practices. An unconscionable act is one that affronts the sense of justice, decency, or reasonableness, including acts that violate public policy or a statute. This claim was based on a duty placed on assignees of real estate mortgages to record those assignments. However, no such duty existed. Thus, failing to record was not deceptive or unconscionable.

The case is No. 12-3494.

Attorneys: Bryan R. Huffman (Huffman Law Firm, PA) and Donald M. Spears (Spears and Spears) for Mayme Brown. Robert M. Brochin (Morgan & Lewis) and David Michael Donovan (Watts & Donovan) for Mortgage Electronic Registration Systems, Inc.

Companies: Mortgage Electronic Registration Systems, Inc.

Cases: StateUnfairTradePractices ArkansasNews IowaNews MinnesotaNews MissouriNews NebraskaNews NorthDakotaNews SouthDakotaNews