Brown v. Mortg. Elec. Registration Sys., Inc.

• Decision Date: 31 December 2013
• Docket Number: No. 12–3494.,12–3494.
• Parties: Mayme BROWN, Individually and in her Official Capacity as Circuit Clerk of Hot Spring County, Arkansas, and on behalf of all Circuit Clerks in the State of Arkansas, Plaintiff–Appellant v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., A Delaware Corporation; Merscorp, Inc.; Bank of America, N.A.; Countrywide Home Loans, Inc., Now known as Bank of America, N.A.; Citimortgage, Inc.; Deutsche Bank National Trust Company; PHH Mortgage Corporation; HSBC Mortgage Services, Inc.; Novastar Mortgage, Inc.; National City Bank; J.P. Morgan Chase Bank; Bank of England; Wells Fargo, N.A.; John Does 1–100; Citifinancial Mortgage Company; National City Mortgage and National City Corp.; PNC Financial Services Group, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

738 F.3d 926

Mayme BROWN, Individually and in her Official Capacity as Circuit Clerk of Hot Spring County, Arkansas, and on behalf of all Circuit Clerks in the State of Arkansas, Plaintiff–Appellant

v.MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., A Delaware Corporation; Merscorp, Inc.; Bank of America, N.A.; Countrywide Home Loans, Inc., Now known as Bank of America, N.A.; Citimortgage, Inc.; Deutsche Bank National Trust Company; PHH Mortgage Corporation; HSBC Mortgage Services, Inc.; Novastar Mortgage, Inc.; National City Bank; J.P. Morgan Chase Bank; Bank of England; Wells Fargo, N.A.; John Does 1–100; Citifinancial Mortgage Company; National City Mortgage and National City Corp.; PNC Financial Services Group, Inc., Defendants–Appellees.

No. 12–3494.

United States Court of Appeals, Eighth Circuit.

Submitted: Sept. 24, 2013.

Filed: Dec. 31, 2013.

Luther Oneal Sutter, Benton, AR, for Plaintiff–Appellant.

James M. Simpson, Charles Turner Coleman, David L. Williams, Geoffrey B. Treece, Kimberly Wood Tucker, David Michael Donovan, Kathryn Bennett Perkins, Joseph Russell Falasco, Jack Walls Allen, Little Rock, AR, David H. Pittinsky, Philadelphia, PA, Thomas Hefferon, Joseph Yenouskas, Washington, DC, Philip Montgomery, Hot Springs, AR, Brandon Bradshaw Cate, Springdale, AR, Lucia Nale, Thomas V. Panoff, Chicago, IL, Marisa Fortunati, Robert M. Brochin, Miami, FL, Gregory J. Marshall, Phoenix, AZ, David S. Mitchell, Memphis, TN, Elizabeth Frohlich, Los Angeles, CA, for Defendants–Appellees.

Before MURPHY, MELLOY, and SHEPHERD, Circuit Judges.

SHEPHERD, Circuit Judge.

Mayme Brown, the Hot Spring County, Arkansas Circuit Clerk, filed suit in Arkansas state court against the appellees, various originators and servicers of loans (Lenders). Brown alleged that the Lenders used the Mortgage Electronic Registration System (MERS) to avoid paying recording fees on mortgage assignments and, thus, deprived Arkansas counties of revenue. The Lenders removed the case to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA), codified at 28 U.S.C. § 1332(d). The district court ¹ denied two Motions to Remand and then dismissed Brown's Complaint with prejudice. Brown appeals, asserting that the district court erred in exercising jurisdiction under CAFA, exercising supplemental jurisdiction over the state-law claims, refusing to abstain from deciding the state-law claims, and dismissing the Complaint on the merits. We affirm.²

I. Background

Generally, in Arkansas, a mortgage on real property is recorded in the county circuit clerk's office. Any subsequent assignments are also recorded in the same office. Mortgagees pay fees for the original recording and all subsequent recordings. The MERS system changed this normal practice. 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 for priority purposes. MERS at all times remains the mortgagee of record in the county property records. The subsequent assignments are not recorded, and no recording fees are paid. Brown filed suit in Arkansas state court and argued that this use of the MERS system violated the Arkansas Deceptive Trade Practices Act (ADTPA), unjustly enriched the Lenders, and was an illegal exaction under the Arkansas Constitution.

The Lenders removed the action under CAFA. In denying Brown's first Motion to Remand, the district court held that it had jurisdiction over the illegal-exaction claim because the requirements under CAFA were met: (1) the class contained at least 100 members because the Arkansas Supreme Court has defined an illegal-exaction suit as a class action brought on behalf of all Arkansas taxpayers, (2) the parties were minimally diverse, and (3) Brown's allegation that the Lenders executed millions of documents without paying recording fees of approximately $15.00 each well exceeded the $5 million jurisdictional amount.

The district court denied a second Motion to Remand, in which Brown moved the court either to abstain from hearing the illegal-exaction claim, exercise comity by refusing to hear the claim, or allow Brown to dismiss the claim without prejudice. The district court found that the Burford abstention doctrine did not apply because the illegal-exaction claim seeking to enforce an Arkansas tax on behalf of its citizens was not the type of complex regulatory scheme required for abstention.³ Second, Levin comity was inapplicable because Levin comity normally applies when a party seeks an injunction to prevent enforcement of a tax, but Brown sought to enforce recording fees.⁴ Finally, the court refused to grant Brown leave to dismiss the claim because her motive was “forum-driven.”

The district court then dismissed Brown's entire Complaint with prejudice under Federal Rule of Civil Procedure 12(b)(6). First, the court held that Brown did not state an illegal-exaction cause of action because Brown brought the claim as a tax-receiver against a private entity. A proper illegal-exaction claim is instead brought by a taxpayer to protect against the government's enforcement of an illegal exaction or expenditure. Second, the court found that both the ADTPA and unjust enrichment claims failed because they rest on the nonexistent duty to record mortgage assignments in Arkansas.

Brown then filed a Motion to Alter or Amend, asking the court to alter its judgment because it was error to retain jurisdiction over and dismiss the state-law claims along with the federal claim because the state-law claims raised novel or complex issues of state law. The district court denied this motion, finding that the claims were sufficiently related to meet the standard for supplemental jurisdiction under 28 U.S.C. § 1367, and the issues raised were neither novel nor complex.

II. Jurisdiction

Brown raises three jurisdictional arguments on appeal: (1) the district court did not have jurisdiction under CAFA because it misconstrued the type of illegal-exaction action Brown pled, (2) even if the court did have CAFA jurisdiction over the illegal-exaction claim, it erred in exercising supplemental jurisdiction over the unjust enrichment and ADTPA claims, and (3) the court erred in not abstaining from hearing the claims.

A. Class Action Fairness Act

The district court properly exercised subject matter jurisdiction under CAFA over the illegal-exaction claim.⁵ Brown argues that the district court's exercise of jurisdiction was erroneous because her proposed class included only the 75 Arkansas circuit clerks rather than all Arkansas taxpayers. She contends that the district court's error in construing the class stemmed from its conflation of the two types of illegal-exaction actions in Arkansas.

We review the district court's interpretation of CAFA de novo. Westerfeld v. Indep. Processing, LLC, 621 F.3d 819, 822 (8th Cir.2010). CAFA “confers federal jurisdiction over class actions where, among other things, (1) there is minimal diversity; (2) the proposed class contains at least 100 members; and (3) the amount in controversy is at least $5 million in the aggregate.” Plubell v. Merck & Co., 434 F.3d 1070, 1071 (8th Cir.2006) (citing 28 U.S.C. § 1332(d)). CAFA's removal provisions apply only to “class action” cases, which are defined by the statute as “any civil action filed under rule 23 of the Federal Rules of Civil Procedure or similar State statute or rule of judicial procedure authorizing an action to be brought by 1 or more representative persons as a class action.” 28 U.S.C. § 1332(d)(1)(B).

Before we reach Brown's arguments regarding the size of the class under CAFA, we must determine whether her proposed class meets the statutory definition of “class action.” Brown's Complaint asked the court to certify a class under the Arkansas constitutional provision defining an illegal-exaction action rather than under Federal Rule of Civil Procedure 23 or the similar Arkansas Rule of Civil Procedure 23. See City of W. Helena v. Sullivan, 353 Ark. 420, 108 S.W.3d 615, 617 (2003) (“[T]he existence of a class based upon the illegal-exaction clause of [the Arkansas] constitution does not depend upon, or require, certification under the provisions of Rule 23.” (citing T & T Chem., Inc. v. Priest, 351 Ark. 537, 95 S.W.3d 750 (2003))). Though an illegal-exaction claim does not require a “certification” in Arkansas, T & T Chemical, Inc., 95 S.W.3d at 752–53, the Arkansas Supreme Court has prescribed a judicially-created procedure to bring an illegal-exaction claim in Arkansas. This procedure, which was promulgated prior to Rule 23 of the Arkansas Rules of Civil Procedure, provides a mechanism for plaintiffs to pursue a class action to collectively resist illegal taxation. Worth v. City of Rogers, 351 Ark. 183, 89 S.W.3d 875, 880–81 (2002) (citing Laman v. Moore, 193 Ark. 446, 100 S.W.2d 971 (1937)). In bringing an illegal-exaction claim, the Arkansas Supreme Court instructs courts to use Arkansas Rule 23 as a procedural guide. Carson v. Weiss, 333 Ark. 561, 972 S.W.2d 933, 935 (1998); see also Worth, 89 S.W.3d at 881. Accordingly, this is a “rule of judicial procedure” that permits Arkansas plaintiffs to effectively litigate their claims by “authorizing an action to be brought by 1 or more representative persons as a class action.” 28 U.S.C. § 1332(d)(1)(B). Therefore, we hold that Brown's Arkansas illegal-exaction claim is a “class action” within the statutory definition.⁶

We next turn to whether the district court erred in determining that the class satisfied the CAFA requirement that the class contain at least 100 members. “It is axiomatic the court's jurisdiction is measured either at the time the action is commenced or, more pertinent to this case, at the time of removal.” Schubert v. Auto Owners Ins. Co., 649 F.3d 817, 822 (8th Cir.2011) (citing McLain v. Andersen Corp., 567...