Sixth Circuit Upholds Dismissal of Putative Class Action

In Christian County Clerk v. Mortgage Electronic Registration Systems, Inc., the Sixth Circuit upheld dismissal of an action brought by various Kentucky county clerks against the MERS system and a variety of banks that utilized it.  The clerks essentially alleged that the defendant banks established MERS to enable its members to avoid recording mortgage assignments and paying the associated recording fees to the country clerks.  The district court dismissed the case on 12(b)(6) grounds, and the country clerks appealed.

The first issue addressed by the Court concerned the standing of the county clerks.  The defendants insisted that the clerks lacked constitutional standing because the clerks purportedly only have an official, but not a personal, stake in the litigation.  The Sixth Circuit, however, found that because the clerks alleged that the defendant’s actions deprived them of fees and interfered with their duties as custodians of property records, they had alleged sufficient injury to pass constitutional muster.

Turning to the merits of the claim, the Court assessed whether the Kentucky statutes upon which the clerks sued afforded them a private right of action.  The statutes relied upon by the clerks did not provide any express cause of action, and therefore the clerks invoked a Kentucky negligence per se statute, which can create a private right of action for a violation of certain state statutes.  The Sixth Circuit, however, rejected this argument, concluding that the clerks were not within the class of persons the Kentucky legislature intended to protect under the recording statutes.  While the recording statutes served multiple purposes, the Sixth Circuit found “no indication that the legislature intended to protect the officers who administer those laws and collect fees.”  This case is a blow to county officers who have sought to recoup fees that they claim are lost through the use of the MERS system, and it certainly begs the question of whether states will pursue other statutory efforts to prevent the loss of those revenues.