File Name: 15a0410n.06
NOT RECOMMENDED FOR PUBLICATION
No. 14-5647
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
BOYD COUNTY, ex rel Phillip Hedrick as )
County Attorney; BREATHITT COUNTY, ) FILED
ex rel Brendon Miller as County Attorney; ) Jun 05, 2015
CARTER COUNTY, ex rel Patrick Flannery ) DEBORAH S. HUNT, Clerk
as County Attorney; CHRISTIAN )
COUNTY, ex rel Michael Foster as County )
Attorney; CLARK COUNTY, ex rel Brian )
Thomas as County Attorney; FLOYD )
COUNTY, ex rel Keith Bartley as County )
Attorney; FRANKLIN COUNTY, ex rel )
Rick Sparks as County Attorney; GREENUP )
COUNTY, ex rel Michael Wilson as County )
Attorney; JOHNSON COUNTY, ex rel )
Michael Endicott as County Attorney; )
LETCHER COUNTY, ex rel Jamie Hatton )
as County Attorney; MAGOFFIN COUNTY, )
ex rel Greg Allen as County Attorney; ) ON APPEAL FROM THE UNITED
MASON COUNTY, ex rel John Estill as ) STATES DISTRICT COURT FOR THE
County Attorney; PIKE COUNTY, ex rel ) EASTERN DISTRICT OF KENTUCKY
Howard Keith Hall as County Attorney; )
WARREN COUNTY, ex rel Amy Milliken ) OPINION
as County Attorney; WOLFE COUNTY, )
Wolfe County ex rel Stephen Johnson; )
CARLISLE COUNTY, Carlisle County ex )
rel Michael Hoagncamp; HART COUNTY, )
Hart County ex rel Mike Nichols; TRIMBLE )
COUNTY, Trimble County ex rel Perry )
Arnold; ESTILL COUNTY, Estill County ex )
rel Rodney Davis; SPENCER COUNTY, )
Spencer County ex rel Ruth Hollan; PERRY )
COUNTY, Perry County ex rel John )
Shackleford; BALLARD COUNTY, Ballard )
County ex rel Vicki Hayden; OLDHAM )
COUNTY, Oldham County ex rel John )
Carter; BARREN COUNTY, Barren County )
ex rel Jeffrey Sharp; NELSON COUNTY, )
Nelson County ex rel John Kelley, Jr.; )
No. 14-5647
Boyd County, et al. v. MERSCORP, Inc., et al.
LARUE COUNTY, LaRue County ex rel. )
Dale Morris; HICKMAN COUNTY, )
Hickman County ex rel Sue Ellen Morris;
)
HENRY COUNTY, Henry County ex rel )
Virginia Harrod; OHIO COUNTY, Ohio )
County ex rel Gregory Hill; LAUREL )
COUNTY, Laurel County ex rel Jodi )
Albright; HANCOCK COUNTY, Hancock )
County ex rel Paul Madden, Jr.; MONROE
)
COUNTY, Monroe County ex rel Wes )
Stephens; LEWIS COUNTY, Lewis County
)
ex rel Thomas Bertram II; ROCKCASTLE
)
COUNTY, Rockcastle County ex rel William
)
Reynolds; MONTGOMERY COUNTY, )
Montgomery County ex rel Kevin Clay)
Cockrell; MENIFEE COUNTY, Menifee )
County ex rel Greg Hall; NICHOLAS )
COUNTY, Nicholas County ex rel Dawn)
Curran Letcher; LOGAN COUNTY, Logan)
County ex rel Joseph Ross; GARRARD )
COUNTY, Garrard County ex rel Mark )
Melcalf; BOONE COUNTY, Boone County)
ex rel Robert Neace; HARLAN COUNTY,)
Harlan County ex rel Fred Busroe, Jr.
)
)
Plaintiffs-Appellants, )
)
v. )
)
MERSCORP, INC.; MORTGAGE )
ELECTRONIC REGISTRATION )
SYSTEMS, INC.; MERSCORP )
HOLDINGS, INC.; AMERICAN LAND )
TITLE ASSOCIATION; BANK OF )
AMERICA; CCO MORTGAGE )
CORPORATION; JP MORGAN CHASE )
BANK; CITI MORTGAGE, INC.; CRE )
FINANCIAL COUNCIL, as Successor to )
Commercial Mortgage Securities )
Association; CORELOGIC; CORINTHIAN )
MORTGAGE CORPORATION; )
EVERHOME MORTGAGE COMPANY; )
FEDERAL HOME LOAN )
MORTGAGECORPORATION; FEDERAL )
NATIONAL MORTGAGE ASSOCIATION; )
FIRST AMERICAN TITLE INSURANCE )
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No. 14-5647
Boyd County, et al. v. MERSCORP, Inc., et al.
CORP; GMAC RESIDENTIAL FUNDING )
CORPORATION; BBVA COMPASS )
BANCSHARES; HSBC FINANCE )
CORPORATION; MERRILL LYNCH )
CREDIT CORPORATION; MGIC )
INVESTOR SERVICES CORPORATION; )
MORTGAGE BANKERS ASSOCIATION, )
INC.; NATIONWIDE ADVANTAGE )
MORTGAGE COMPANY; PMI )
MORTGAGE INSURANCE COMPANY; )
SUNTRUST MORTGAGE, INC.; UNITED )
GUARANTY CORPORATION; WELLS )
FARGO BANK, N.A.; LENDER )
PROCESSING SERVICES, INC.; )
RECONTRUST, N.A.; STEWART TITLE )
GUARANTY COMPANY, INC. )
)
Defendants-Appellees. )
)
BEFORE: GRIFFIN and STRANCH, Circuit Judges; STEEH, District Judge.*
JANE B. STRANCH, Circuit Judge. Forty-one of Kentucky’s 120 counties, through
their county attorneys, brought this putative class-action lawsuit in the United States District
Court for the Eastern District of Kentucky against Mortgage Electronic Registration Systems,
Inc. (MERS) and its shareholders. The counties allege that MERS and its shareholders have
assigned and continue to assign mortgage liens among each other without recording those
assignments, in violation of Kentucky law. The district court dismissed the lawsuit on the
ground that the counties lacked the power to enforce the statute, either prospectively or
retrospectively. In support, the court largely relied on this court’s opinion in Christian Cnty.
Clerk ex rel Kem v. Mortgage Electronic Registration Systems, Inc., 515 F. App’x 451 (6th Cir.
2013), which held that county clerks lack a private right of action to pursue similar claims.
*
The Honorable George C. Steeh, United States District Judge for the Eastern District of Michigan, sitting
by designation.
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The counties now argue that they have the power, as subdivisions of the state, to enforce
mandatory provisions of Kentucky’s recording statute through civil litigation. This is a novel
argument under Kentucky law, which we do not adopt without support from the Kentucky
courts. Moreover, because the counties chose to bring this litigation in federal court and sought
certification only after the district court ruled against them, we decline to certify a question to the
Kentucky Supreme Court.
I. Factual and Procedural Background
The Judicial Panel on Multidistrict Litigation succinctly described the MERS business
model:
The MERS system purportedly operates as follows: When a home is purchased,
the lender obtains from the borrower a promissory note and a mortgage
instrument naming MERS as the mortgagee (as nominee for the lender and its
successors and assigns). In the mortgage, the borrower assigns his right, title, and
interest in the property to MERS, and the mortgage instrument is then recorded in
the local land records with MERS as the named mortgagee. When the promissory
note is sold (and possibly re-sold) in the secondary mortgage market, the MERS
database tracks that transfer. As long as the parties involved in the sale are MERS
members [as most large financial institutions are], MERS remains the mortgagee
of record (thereby avoiding recording and other transfer fees that are otherwise
associated with the sale) and continues to act as an agent for the new owner of the
promissory note.
In re MERS Litig., 659 F. Supp. 2d 1368, 1370 n.6 (U.S. Jud. Pan. Mult. Lit. 2009). This lawsuit
alleges that the defendants, through MERS, avoid recording mortgage assignments—and thereby
avoid paying the recording fees. The counties argue that the defendants’ actions violate Ky. Rev.
Stat. § 382.360(3), which, for a mortgage that has been initially recorded, requires: “When a
mortgage is assigned to another person, the assignee shall file the assignment for recording with
the county clerk within thirty (30) days of the assignment[.]” The counties argue that, under
Kentucky law, the assignment of the promissory note secured by a mortgage transfers the
mortgage interest as well. See Christian Cnty. Clerk, 515 F. App’x 451, 455 (6th Cir. 2013) and
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cases cited. They therefore maintain that MERS and its shareholders are required to record each
assignment and pay the corresponding fees. The counties brought claims for violation of the
recording statute, violation of a criminal statute barring illegal liens (Ky. Rev. Stat. § 434.155),
fraud, unjust enrichment, and civil conspiracy. The counties seek an injunction mandating that
the defendants record all such assignments in the future, as well as compensatory and punitive
damages for the past failure to record and for unpaid fees. (R. at Page ID 556)
II. Discussion
The counties appeal from the dismissal of two of their claims: the claim for violation of
the recording statute and the claim for unjust enrichment. The district court interpreted the first
claim as arising under Ky. Rev. Stat. § 446.070—Kentucky’s negligence per se statute—despite
the fact that the counties did not invoke § 446.070 in their complaint and, in response to the
motion to dismiss, maintained that they were not bringing such a claim. The district court
correctly determined that the reasoning of Christian County Clerk, 515 F. App’x 451, would bar
counties from bringing claims for unjust enrichment and claims under § 446.070. As described
below, however, the counties presented a separate argument that they are empowered to
independently seek enforcement of mandatory provisions of the recording statute. Because the
Kentucky courts have yet to recognize such a power, we do not find it appropriate for us, as a
federal court, to do so now.
A. Ky. Rev. Stat. § 446.070
The district court analyzed the counties’ claim as seeking a private right of action—
which may be brought only pursuant to the negligence per se statute, § 446.070. See Christian
Cnty. Clerk, 515 F. App’x at 456. Section 446.070 “creates a private right of action in a person
damaged by another person’s violation of any statute that is penal in nature and provides no civil
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remedy, if the person damaged is within the class of persons the statute intended to be
protected.” Hargis v. Baize, 168 S.W.3d 36, 40 (Ky. 2005).
In Christian Cnty. Clerk, 515 F. Appx. at 456–58, this court held that county clerks could
not pursue a recording-statute claim under § 446.070 because they were not within the class of
persons that the Kentucky General Assembly sought to protect with the recording statutes.
“Considering the overall statutory scheme, Kentucky authorities appear to recognize three
categories of protected persons: (1) existing lienholders and lenders who record their security
interests in the land to give notice of their secured status; (2) prospective lienholders and
purchasers; and (3) property owners and borrowers whose loans have been satisfied.” Id. at 456–
57 (citations omitted). The court rejected the clerks’ arguments that their role in administering
the system and right to use recording fees manifested an intent to protect them through the
recording statute. Id. at 457–58. As correctly noted by the district court, this reasoning would
also bar the counties from pursuing a recording-statute claim under the provisions of § 446.070,
if they had brought such a claim.
B. Unjust Enrichment
In Christian Cnty. Clerk, we further rejected the clerks’ claims for unjust enrichment
because “the benefits that the Clerks purport Defendants have derived from recording
assignments in MERS's name, such as lien priority and the ability to release satisfied mortgages,
would be derived from Kentucky law, not from the Clerks themselves.” 515 F. App’x at 459–60.
The counties in the present case allege that they expend resources to maintain recording systems
that accrue to the defendants’ benefit, and they provide no reasoning to distinguish their
resources from those provided by the county clerks. These arguments mirror the arguments
made by the clerks in Christian County Clerk, and the counties do not provide a meaningful
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argument to distinguish their role in administering Kentucky recording statutes from the clerk’s
role. Because, in both cases, the benefits that accrued to the Defendants derived from state law,
the reasoning of Christian County Clerk bars an unjust enrichment claim by the counties.
C. The Counties’ New Theory
The counties now argue that Kentucky law empowers them to seek enforcement of a
statute in which the county has an interest. Understanding their position requires some
background on the legal structure of county government in Kentucky. The Kentucky
constitution recognizes counties as subdivisions of the state and establishes several elected
offices. See, e.g. Ky. Const. §§ 99, 144. Counties are governed by fiscal courts, which are
composed of the county judge/executive and either three commissioners or three to eight justices
of the peace. Ky. Const. § 144. The judge/executive, when acting separately from the fiscal
court, holds the executive and administrative powers of the county, and the fiscal court exercises
the legislative powers of the county. Ky. Const. § 125; Ky. Rev. Stat. §§ 67.710, 67.080. The
fiscal court may not exercise executive authority, except as specifically assigned by statute. Ky.
Rev. Stat. § 67.080(3). The county attorney is also a constitutionally established office. Ky.
Const. § 99. A county attorney is responsible for serving as counsel for the fiscal court and
“shall institute, defend, and conduct all civil actions in which the county or consolidated local
government is interested before any of the courts of the Commonwealth.” Ky. Rev. Stat. §
69.210 (1).
The counties analogize the roles of the county attorneys to other constitutional officers
that act on behalf of the commonwealth, particularly the attorney general, and seek analogous
authority to enforce laws that affect the interests of counties. The Attorney General, exercising
his common-law powers, may institute such suits in any venue. Ky. Rev. Stat. § 15.020
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(mandating that the Attorney General “exercise all common law duties and authorities”
pertaining to the office except where otherwise provided by statute); Commonwealth ex rel.
Conway v. Thompson, 300 S.W.3d 152, 172–74 (Ky. 2009). Furthermore, in each judicial circuit
(the trial-level jurisdiction in Kentucky), the commonwealth’s attorney is empowered to bring
and defend litigation on behalf of the commonwealth—in courts within that circuit. Ky. Rev.
Stat. § 69.010 (“[T]he Commonwealth’s attorney shall . . . attend to all civil cases and
proceedings in which the Commonwealth is interested in the Circuit Courts of his judicial
circuit.”); Goose v. Commonwealth ex rel. Dummit, 205 S.W.2d 326 (Ky. 1947) (relying on this
statutory authority to empower a Commonwealth’s attorney to pursue an injunction that was not
explicitly authorized or available to private parties).1
The counties are staking out a novel legal theory—and such legal innovations are better
addressed by Kentucky courts. “[F]ederal courts sitting in a diversity case are in ‘a particularly
poor position . . . to endorse a fundamental policy innovation.’” Combs v. Int’l Ins. Co., 354
F.3d 568, 577–78 (6th Cir. 2004) (quoting Dayton v. Peck, Stow & Wilcox Co. (Pexto), 739 F.2d
690, 694 (1st Cir.1984)) (alteration omitted). Therefore, “‘[w]hen given a choice between an
interpretation of [state] law which reasonably restricts liability, and one which greatly expands
liability, we should choose the narrower and more reasonable path.’” Id. at 577 (quoting Todd v.
Societe Bic, S.A., 21 F.3d 1402, 1412 (7th Cir.1994) (en banc)) (alterations in original). The
counties ask us to expand their rights under Kentucky law, and we must refuse.
We nevertheless decline to certify the question to the Kentucky Supreme Court. The
Kentucky Supreme Court is authorized to receive certified questions from both United States
1
In the circuits that contain large cities, the county attorneys also take on a separate role of representing the
commonwealth in civil cases in their own counties. Ky. Rev. Stat. § 69.210(4). Although some of the county
attorneys appearing in this lawsuit are empowered to represent the commonwealth, they are not representing the
commonwealth in this proceeding.
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District Courts and United States Courts of Appeal. Ky. Civ. R. 76.37(1). When a party seeks
certification of a question from both the district court and our court, we must therefore exercise
our own discretion whether to certify, in addition to or instead of reviewing the district court’s
exercise of its discretion. The counties initiated this lawsuit in federal court, and they did not ask
for certification until after the district court ruled against them. “[C]ertification is disfavored
where a plaintiff files in federal court but then, in light of an unfavorable judgment, seeks refuge
in a state forum.” Geronimo v. Caterpillar, Inc., 440 F. App’x 442, 449 (6th Cir. 2011). We are
not persuaded by the counties’ argument that they filed in federal court because of “the virtual
certainty that . . . the state court action [would have been] removed to federal court.” Appellant’s
Br. at 27. To the extent that the counties did, in fact, believe that state courts provided a better
forum to consider their novel legal argument, they should have filed in state court or at least
sought certification before the district court ruled on the merits of the claim. Town of Smyrna,
Tenn. v. Mun. Gas Auth. Of Ga.¸ 723 F.3d 640, 649 (6th Cir. 2013) (“The appropriate time to
seek certification of a state-law issue is before a District Court resolves the issue, not after
receiving an unfavorable ruling.”).
III. Conclusion
For these reasons, we AFFIRM the judgment of the district court.
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