Fifth Circuit Dismisses RICO Claims Against MERS; Texas District Court Dismisses Similar Claims


On March 5, the U.S. Court of Appeals for the Fifth Circuit affirmed on different grounds the dismissals of two cases filed against MERS, the electronic mortgage registry, and its member banks, holding that the complaints failed to adequately plead a RICO injury to the plaintiffs’ “business or property.” Welborn v. Bank of N.Y. Mellon Corp., No, 13-30103, 2014 WL 843262 (5th Cir. Mar. 5, 2014). The cases consolidated for appeal were filed separately by parish and county land recorders in Louisiana and Texas who claimed that fraudulent statements about the legal effect of MERS caused fewer filings in their offices, which decreased fee revenues and undermined the accuracy of records. The district courts in both cases dismissed the complaints, holding that the land recorders were improperly seeking to enforce through the RICO statute the Trust Indenture Act of 1939 (TIA). Without resolving the dispute over whether the complaints sought to enforce the TIA, or whether doing so through civil RICO would be permitted, the court instead dismissed the complaints because they failed to allege an “injury to business or property” under RICO and therefore did not state legally cognizable claim sufficient to survive Rule 12(b)(6). The court explained that under RICO, recovery by a government is only authorized for “injuries suffered in its capacity as a consumer of goods and services,” and that alleged injury to the general economy or the government’s ability to carry out its functions is insufficient. Here, the court held, the alleged injuries did not arise from commercial activity, but rather from a governmental function. A day earlier, the U.S. District Court for the Northern District of Texas dismissed a similar case filed by other Texas counties, alleging violations of a Texas recording statute. The court held that the statute at issue contains no remedy provision, and nothing stating or suggesting that a county may seek relief under the statute, and that the statute does not require the recordation of interim instruments, such as assignments of deeds of trusts. Dallas County v. Merscorp, Inc., No. 11-2733, 2014 WL 840016 (N.D. Tex. Mar. 4, 2014). The court granted summary judgment in favor of MERS and related defendants and dismissed the case.

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