Welk v. GMAC Mortg., LLC, Case No. 11–CV–2676 (PJS/JJK).

Citation850 F.Supp.2d 976
Decision Date29 March 2012
Docket NumberCase No. 11–CV–2676 (PJS/JJK).
PartiesHeather L. WELK, Susie B. Jones, William Bigelow, Christine Heinzman, Mark Heinzman, Sigmond Singramdoo, Troy Forte, Lynn M. Forte, David J. Roster, Charity Roster, Patrick Rucci, Gary G. Klingner, Rebecca A. Albers, Ian Patterson, James Willis Konobeck, Jr., Alison Konobeck, Amy B. Tibke, Dane A. Tibke, Tracy J. Miklas, Michelle L. Miklas, Plaintiffs, v. GMAC MORTGAGE, LLC; Ally Financial, Inc.; Mortgage Electronic Registration Systems, Inc.; Merscorp, Inc.; U.S. Bank, N.A.; Deutsche Bank Trust Company Americas; Shapiro & Zielke, LLP; U.S. Bank National Association ND; Deutsche Bank National Trust Company; The Bank of New York Mellon, f/k/a The Bank of New York, Defendants.
CourtU.S. District Court — District of Minnesota

850 F.Supp.2d 976

Heather L. WELK, Susie B. Jones, William Bigelow, Christine Heinzman, Mark Heinzman, Sigmond Singramdoo, Troy Forte, Lynn M. Forte, David J. Roster, Charity Roster, Patrick Rucci, Gary G. Klingner, Rebecca A. Albers, Ian Patterson, James Willis Konobeck, Jr., Alison Konobeck, Amy B. Tibke, Dane A. Tibke, Tracy J. Miklas, Michelle L. Miklas, Plaintiffs,
v.
GMAC MORTGAGE, LLC; Ally Financial, Inc.; Mortgage Electronic Registration Systems, Inc.; Merscorp, Inc.; U.S. Bank, N.A.; Deutsche Bank Trust Company Americas; Shapiro & Zielke, LLP; U.S. Bank National Association ND; Deutsche Bank National Trust Company; The Bank of New York Mellon, f/k/a The Bank of New York, Defendants.

Case No. 11–CV–2676 (PJS/JJK).

United States District Court,
D. Minnesota.

March 29, 2012.


[850 F.Supp.2d 980]


William B. Butler, Butler Liberty Law, LLC; Susanne M. Glasser, Glasser Law LLC, for plaintiffs.

Charles F. Webber, Trista M. Roy, Faegre Baker Daniels LLP, for defendants GMAC Mortgage, LLC; Ally Financial, Inc.; Merscorp, Inc.; Deutsche Bank Trust Company Americas; and The Bank of New York Mellon.


Kirstin D. Kanski, William P. Wassweiler, Lindquist & Vennum PLLP; Charles F. Webber, Trista M. Roy, Faegre Baker Daniels LLP, for defendant Mortgage Electronic Registration Systems, Inc.

Brian L. Vander Pol, Dorsey & Whitney LLP; Charles F. Webber, Trista M. Roy, Faegre Baker Daniels LLP, for defendants U.S. Bank, N.A.; U.S. Bank National Association ND.

Amanda M. Govze, Kristine M. Spiegelberg Nelson, Shapiro & Zielke, LLP, for defendant Shapiro & Zielke, LLP.

Frederick S. Levin, Dykema Gossett LLP; Kirstin D. Kanski, William P. Wassweiler, Lindquist & Vennum PLLP; Jared D. Kemper, Foley & Mansfield, PLLP, for defendant Deutsche Bank National Trust Company.

ORDER

PATRICK J. SCHILTZ, District Judge.

In recent years, the federal courts have been inundated with lawsuits brought by homeowners challenging the foreclosures of the mortgages on their homes. Some of these lawsuits are meritorious, but many are not, and quite a few are frivolous. The most common type of frivolous lawsuit is premised on what judges often refer to as the “show-me-the-note” theory.

In every mortgage transaction, the borrower signs both a note (in which she promises to repay the loan) and a mortgage (in which she pledges her home as security for her promise to repay the loan). Historically the lender held both the note and the mortgage. Since the 1990s, however, it has become common for the note and the mortgage to be held by different entities. Often, the note is held by the lender (or by someone who bought the note from the lender), while the mortgage is held by (and recorded in the name of) a nominal mortgagee such as defendant Mortgage Electronic Registration Systems, Inc. (“MERS”). This system allows loans secured by mortgages to be sold and resold multiple times without the necessity of recording each sale on the title of the mortgaged property.

A plaintiff bringing a show-me-the-note claim generally argues that, because the entity that holds her mortgage (say, MERS) is not the same as the entity that holds her note (say, U.S. Bank), the mortgage on her home or the foreclosure of that mortgage is invalid. This argument is frivolous when made under Minnesota law. Indeed, this argument has been rejected by the Minnesota Supreme Court, by the United States Court of Appeals for the Eighth Circuit, and by every federal judge sitting in Minnesota who has addressed the argument. All of these courts have

[850 F.Supp.2d 981]

held—clearly, repeatedly, and recently—that, under Minnesota law, the entity that holds the mortgage can foreclose on the mortgage even if that entity does not also hold the note.

Unfortunately, neither the number nor clarity of these judicial decisions has stopped plaintiffs from continuing to bring show-me-the-note lawsuits. Many of these lawsuits are brought by plaintiffs who represent themselves. Some of these plaintiffs seem to be desperate homeowners who have searched the Internet for a way to save their homes from foreclosure, run across websites touting unconventional legal theories, and been persuaded of the merit of the show-me-the-note theory. Other plaintiffs seem to be homeowners who fully understand that the show-me-the-note theory is frivolous but who are simply looking for a way to tie up their mortgagees in court, postpone the inevitable foreclosures, and live rent-free in their homes for months or even years.

In Minnesota, however, the bulk of the show-me-the-note claims that have recently been filed have been brought not by desperate homeowners representing themselves, but by attorney William B. Butler of Butler Liberty Law, LLC. In fact, Butler has made a cottage industry out of filing frivolous show-me-the-note actions. Butler attracts clients through a website that blatantly misrepresents Minnesota law and attacks the legal system, the banking system, and other targets. Butler has been quite successful in attracting clients, who either do not know or do not care that he has never actually won a show-me-the-note claim.

This is one of a series of nearly 30 cases that Butler has filed—on behalf of a total of perhaps a couple of hundred plaintiffs—in which he has challenged the validity of the mortgages on his clients' properties. One of the first show-me-the-note lawsuits brought by Butler challenged the foreclosure of the mortgage on his own home. Butler v. Bank of Am., N.A., No. 11–461 (DWF/TNL), 2011 WL 2728321 (D.Minn. July 13, 2011). Since bringing that lawsuit, Butler has refined his methods and has now settled into a familiar pattern:

Butler takes a group of a dozen or so individuals who are facing foreclosure but otherwise have no connection to one another; he gins up a dozen or so claims against a dozen or so defendants grounded mostly on the show-me-the-note theory; he improperly packages these claims into a single state-court action; and he fraudulently joins a single nondiverse defendant (typically a law firm that represented one of the lenders in foreclosure proceedings) in an attempt to block removal to federal court. The defendants generally remove the cases to federal court, and Butler then moves to remand. If the judge denies Butler's motion, he might “remand” the case himself by voluntarily dismissing it and refiling it in state court within a day or two, thereby starting the process all over again. Butler might also “judge shop” in the same manner; if he does not like his chances before a particular federal judge, he might voluntarily dismiss his case, promptly refile it in state court, and start the process all over again. To hide his conduct, Butler will reorder the names of the plaintiffs or substitute a new plaintiff for one of the old plaintiffs, so that the refiled case will have a different caption.

When Butler's claims are finally challenged on the merits, he makes false representations and spins out contradictory and often absurd arguments in the apparent hope that their sheer weight and number, multiplied by the number of parties and claims, will overwhelm his opponents and the court. Butler makes claims in his briefs that do not appear in his pleadings; he makes claims during hearings that do not appear in either his briefs or his pleadings; and, when ordered to show cause

[850 F.Supp.2d 982]

why he should not be sanctioned, he makes claims in his response that he did not make during the hearing or in his briefs or pleadings. Of course, while all of this drags on month after month, Butler collects fees from his clients, and his clients live rent-free in their homes.

This matter is before the Court on numerous motions, including defendants' motions to dismiss and for sanctions, plaintiffs' motions to remand, and the Court's order to show cause why Butler should not be sanctioned under Fed.R.Civ.P. 11. For the reasons stated below, the Court:

(1) grants defendants' motions to dismiss, but stays the dismissal of plaintiff Heather Welk's claims pending further briefing on the issue of prior exclusive jurisdiction;

(2) denies plaintiffs' first and second motions to remand, except to the extent that the second motion pertains to Welk's claims;

(3) orders Butler to pay a sanction of $50,000 to the Court pursuant to Fed.R.Civ.P. 11;

(4) orders Butler to pay a portion of defendants' attorney's fees pursuant to 28 U.S.C. § 1927;

(5) orders that plaintiff Sigmond Singramdoo's proposed amended complaint be severed and that Singramdoo pay a civil filing fee of $350; and

(6) denies Singramdoo's motion for a temporary restraining order as moot.

I. MOTIONS TO DISMISS

Ordinarily, the Court would address plaintiffs' motions to remand before addressing defendants' motions to dismiss. After all, a court cannot rule on the merits of a claim before first satisfying itself that it has jurisdiction over that claim. In this case, though, plaintiffs' motions to remand largely turn on defendants' argument that the one nondiverse defendant has been fraudulently joined to defeat federal jurisdiction. Consideration of defendants' fraudulent joinder argument requires consideration of the merits of the claims made against the nondiverse defendant—and that, in turn, requires a thorough understanding of the nature of plaintiffs' claims. The Court will therefore address the merits of plaintiffs' claims, and then turn to plaintiffs' motions to remand.

A. Standard of Review

In reviewing a motion to dismiss under Fed.R.Civ.P. 12(b)(6), a court must accept as true all factual allegations in the complaint and draw all reasonable inferences in the plaintiff's favor. Blankenship v. USA Truck, Inc., 601 F.3d 852, 853 (8th Cir.2010). But the plaintiff must do more than offer “labels and conclusions” or a “formulaic recitation of the elements of a cause of action....” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Instead, the “[f]actual allegations must be enough to raise a right...

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