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

• Decision Date: 06 November 2013
• Docket Number: No. 13–cv–3075 (ENV)(VMS).,13–cv–3075 (ENV)(VMS).
• Citation: 981 F.Supp.2d 144
• Parties: Brian CUTRONE and Jessica Cervone, individually and on behalf of all others similarly situated, Plaintiffs, v. MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendant.
• Court: U.S. District Court — Eastern District of New York

981 F.Supp.2d 144

Brian CUTRONE and Jessica Cervone, individually and on behalf of all others similarly situated, Plaintiffs,

v.MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendant.

No. 13–cv–3075 (ENV)(VMS).

United States District Court, E.D. New York.

Nov. 6, 2013.

Charles C. Martorana, Hiscock & Barclay, LLP, Buffalo, NY, for Defendant.

Mark S. Reich, Samuel H. Rudman, William John Geddish, Robbins Geller Rudman & Dowd, LLP, Melville, NY, for Plaintiffs.

MEMORANDUM & ORDER

VITALIANO, District Judge.

On February 20, 2013, plaintiffs Brian Cutrone and Jessica Cervone filed this putative class action against Mortgage Electronic Registration Systems, Inc. (“MERS”), alleging violations of New York General Business Law (“GBL”) §§ 349 and 350, as well as breaches of implied warranties. The action was commenced in Supreme Court, Kings County. MERS answered on April 5, 2013, and demanded a bill of particulars. Plaintiffs responded on or about May 6, 2013. On May 24, 2013, MERS filed a notice of removal to this Court. Plaintiffs now seek remand upon their motion of June 24, 2013.¹ For the reasons that follow, the motion to remand is granted.

Background

This dispute arises from the taxation of certain mortgage transactions by the State of New York.² At all times relevant to this litigation, under Article 11 of the New York Tax Law, mortgages were taxed as an excise, with the tax payable when a mortgage securing a new loan was recorded. Under certain circumstances, the tax was applicable to mortgage refinancings and, effectively, subjected the refinancing to a second excise tax. In practice, however, the use of consolidation, extension, and modification agreements (“CEMAs”) allows lien holders to assign mortgages and notes to new lenders, for a fee paid by the mortgagee to the original lien holder; the existing mortgage is then modified, instead of satisfied and replaced by a “new loan” altogether. CEMA refinancing amounts, effectively, to modification and assignment, and is thus not considered a taxable event under New York's mortgage recording tax law.

MERS provides services designed to simplify the mortgage financing and refinancing process. It claims the ability to sign, record, and transfer mortgages electronically. MERS becomes (and remains) the technical mortgagee of record, regardless of the number of times a mortgage is refinanced and of the identity of the true lender. In connection with the facilities it offers, MERS maintains a registry of electronically executed mortgage notes and securities instruments. The MERS regime is emblematic of the digital world's paperless society. In the pre-MERS age, each document and note physically existed, separate and apart from all other interests and documents. A physical transfer of the separately existing note accomplished the assignment from assignor to assignee. With MERS, a change on the electronic registry accomplishes the assignments of interests. The electronic age comes a cropper when a filing is necessary to establish notice and priority of the encumbrance.As in the pre-digital age, these tasks are accomplished by the filing of a copy of the mortgage, however signed or modified, in the County Clerk's recording office.

Plaintiffs obtained, on March 27, 2008, a MERS “E–Sign” mortgage for real property they owned in New York, and filed it in the County Clerk's office, at which point they paid $7476 in mortgage recording taxes on the E–Sign mortgage. Subsequent to that filing, plaintiffs allege, a ruling by the Appellate Division, Second Department called into question whether mortgage and note assignments executed by MERS were valid assignment, because MERS at no point actually “holds” mortgage notes-that is, possesses a physical instrument existing separate and independently of the MERS electronic registry. (Compl.¶ 45); see Bank of New York v. Silverberg, 86 A.D.3d 274, 926 N.Y.S.2d 532 (2d Dep't 2011). In sum and substance, the New York courts seem to have reasoned that, because MERS did not have physical possession of separate mortgage note instruments, it had no legal instrument to assign-it was merely entering a change, as the mortgagee of record and nominee of the actual lending mortgagee, on its electronic books. Without the ability to assign, MERS could not, therefore, be party to a CEMA transaction, either.

The state court decision dramatically altered the landscape for MERS and its mortgagors, including plaintiffs. When plaintiffs refinanced their mortgage, on January 7, 2013, they could not avail themselves of a CEMA, but a physical recording of the restructured indebtedness still had to be made with the County Clerk's office. Absent the CEMA, the new recording also meant plaintiffs were required to pay a second mortgage tax on the “new” mortgage (computed at $6835.20). Plaintiffs allege in this action that MERS was “on notice that its assignments and transfers of E–Sign mortgages were not valid in New York,” presumably meaning, in effect, that their refinancings did not qualify for CEMA tax treatment. Plaintiffs contend they were unlawfully led to believe by MERS that their mortgage could be refinanced under a CEMA, and the second tax avoided. Their reliance on the CEMA-compliancy of MERS's E–Sign mortgage refinancing proved detrimental. Specifically they claim that they were forced to pay the second mortgage tax, contrary to representations by MERS that the refinancing would not involve a brand new mortgage, but rather a valid CEMA modification and assignment.

Plaintiffs filed this lawsuit against MERS alleging common law breach of warranty, as well as statutory claims of deceptive acts and practices in violation of GBL § 349, and false advertising in violation of GBL § 350. Plaintiffs also brought suit on behalf of all similarly situated persons, namely, “[a]ll qualified persons or entities in New York State who have been forced to pay the New York State Mortgage Recording Tax upon refinancing of a mortgage due to [MERS]'s failure to warn that it would be required when utilizing a MERS E–Sign mortgage.” (Compl.¶ 55). Additionally, plaintiffs alleged that they “believe in good faith that the Class includes hundreds, and likely thousands, of persons and entities” and that “Class members are identifiable from records maintained by [MERS].” ( Id. at ¶ 56).

Standard of Review

Federal jurisdiction is available only when a federal question is presented, 28 U.S.C. § 1331, or when the plaintiff and defendant are of diverse citizenship and the amount in controversy exceeds $75000. 28 U.S.C. § 1332. In a putative class action, such as this case, the Class Action Fairness Act (“CAFA”) further empowers the federal courts to exercise diversity jurisdiction where (1) at least one plaintiff and one defendant are citizens of different states; (2) the putative class contains at least 100 members; and (3) the amount in controversy is at least $5 million in the aggregate, not including interest or costs. 28 U.S.C. § 1332(d); Blockbuster, Inc. v. Galeno, 472 F.3d 53, 56 (2d Cir.2006).

A party may remove “any civil action brought in a State court of which the district courts of the United States have original jurisdiction” to the district court “for the district and division embracing the place where such action is pending.” 28 U.S.C. § 1441(a). If an action is “founded on a claim or right arising under the Constitution, treaties, or laws of the United States”, it is “removable without regard to the citizenship or residence of the parties.” 28 U.S.C. § 1441(b). CAFA also permits the removal to federal court of any cases filed in state court that meet its jurisdictional requirements. 28 U.S.C. § 1453.

A notice of removal, under any circumstance, must be filed within 30 days of the removing party's receipt of the summons and complaint, 28 U.S.C. § 1446(b)(1), or, “if the case stated by the initial pleading is not removable,” then within 30 days of the receipt of any filing “from which it may first be ascertained that the case is one which or has become removable.” 28 U.S.C. § 1446(b)(3). Finally, removal statutes are to be strictly construed, and any doubts are to be resolved in favor of remand. See Beatie and Osborn LLP v. Patriot Scientific Corp., 431 F.Supp.2d 367, 382–83 (S.D.N.Y.2006); Codapro Corp. v. Wilson, 997 F.Supp. 322, 324–25 (E.D.N.Y.1998). The burden of showing the proper exercise of jurisdiction by the removal court rests with the party seeking removal. See California Public Employees' Retirement System v. WorldCom, Inc., 368 F.3d 86, 100 (2d Cir.2004); Grimo v. Blue Cross/Blue Shield of Vermont, 34 F.3d 148, 151 (2d Cir.1994).

Discussion

MERS asserts that two bases for federal jurisdiction exist in this case, which would make removal proper. First, under CAFA, MERS notes that the parties are diverse in citizenship, that the putative class includes more than 100 people, and that there is a reasonable probability that the aggregated class claims could exceed $5 million. Second, in the alternative, it argues that the case presents a federal question because it bears on the “legal effect, validity, or enforceability” of electronic promissory notes contemplated by the Federal Electronic Records and Signatures in Commerce Act, 15 U.S.C. § 7001 et seq.

Plaintiffs argue that this case should be remanded because, among other deficiencies, defendant's notice of removal was untimely. On this score, MERS admits that its notice of removal was entered well after the 30 day limitations period contemplated by 28 U.S.C. § 1446(b)(1), but retorts that removability—particularly, the amount in controversy to satisfy CAFA—was unclear from the face of plaintiffs' complaint, and, therefore, the removal clock was tolled until plaintiffs served on MERS papers making the amount in controversy explicit. See28 U.S.C. § 1446(b)(3). As such, MERS urges that its notice is timely.

The synergistic effect of its concession on timeliness requires MERS to establish...