Dallas County, Texas v. MERSCORP, Incorpora , 791 F.3d 545 ( 2015 )


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  •      Case: 14-10392   Document: 00513095770     Page: 1   Date Filed: 06/26/2015
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT                           United States Court of Appeals
    Fifth Circuit
    FILED
    June 26, 2015
    No. 14-10392
    Lyle W. Cayce
    Clerk
    HARRIS COUNTY TEXAS; BRAZORIA COUNTY TEXAS, on behalf of
    themselves and all other similarly situated counties in Texas; DALLAS
    COUNTY, TEXAS,
    Plaintiffs - Appellants
    v.
    MERSCORP INCORPORATED; MORTGAGE ELECTRONIC
    REGISTRATION SYSTEMS INCORPORATED; BANK OF AMERICA
    NATIONAL ASSOCIATION,
    Defendants - Appellees
    Appeals from the United States District Court
    for the Northern District of Texas
    Before DENNIS, PRADO, and HIGGINSON, Circuit Judges.
    STEPHEN A. HIGGINSON, Circuit Judge:
    This appeal explores the tension between public and private systems for
    recording real property interests in Texas. Plaintiffs–Appellants—Dallas,
    Harris, and Brazoria Counties (collectively, “the Counties”)—filed this lawsuit
    against MERSCORP, Inc., Mortgage Electronic Registration Systems, Inc.
    (“MERS”), and Bank of America, N.A. (sometimes collectively, “Defendants”).
    The Counties alleged that Defendants violated Texas Local Government Code
    § 192.007 and Texas Civil Practice and Remedies Code § 12.002, and alleged
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    claims of fraudulent misrepresentation and unjust enrichment. The district
    court entered final judgment in favor of Defendants on all claims. We AFFIRM.
    FACTS AND PROCEEDINGS
    I.     MERS
    In Texas, when a borrower obtains a home loan, the borrower executes
    two documents in favor of the lender: (1) a promissory note that creates the
    borrower’s legal obligation to repay the lender, and (2) a deed of trust that
    grants the lender a lien on the property as security for the debt. To give notice
    to subsequent purchasers and creditors, the deed of trust may be recorded in
    the county where the property is located. Despite the legal significance of
    recording a deed of trust, recording is optional in Texas. See Tex. Prop. Code
    Ann. § 12.001(a).
    MERS has changed this recording practice for millions of mortgages.
    MERSCORP is a privately held company that was created in the mid-1990s. It
    operates a national electronic registry called MERS that tracks servicing rights
    and mortgage ownership in the United States. 1 MERS is a membership
    organization whose members include residential mortgage lenders and
    servicers, such as Bank of America. When a borrower obtains a home loan from
    a MERS-member bank, MERS is listed as the “beneficiary” on the deed of trust.
    The promissory note, however, is executed in favor of the bank. MERS does not
    loan money, hold the promissory note, service the mortgage, or collect
    payments. The bank registers the loan on the MERS system and submits the
    deed of trust to the county clerk to be recorded in county land records. Because
    MERS is listed as the beneficiary of the deed of trust, the county clerk will
    ordinarily index MERS in the land-records index as a grantee.
    Because their corporate identities are not relevant in this appeal, we refer to MERS,
    1
    MERSCORP, and the MERS system all as “MERS.”
    2
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    The borrower and the MERS-member lender contractually agree to this
    arrangement. The deed of trust that the parties execute contains language that
    states: “MERS is a separate corporation that is acting solely as a nominee for
    Lender and Lender’s successors and assigns. MERS is a beneficiary under
    this Security Instrument.” The deed of trust also states that “Borrower
    understands and agrees that MERS holds only legal title to the [secured]
    interests granted by Borrower in this Security Instrument” and that “MERS
    (as nominee for Lender and Lender’s successors and assigns) has the right . . .
    to foreclose and sell the Property.”
    If the lender later transfers the promissory note (or its interest in the
    note) to another MERS member, no assignment of the deed of trust is created
    or recorded because, according to Defendants, MERS remains the nominee for
    the lender’s successors and assigns. Under this theory, because MERS is
    always listed as the beneficiary on any deed of trust that a MERS member
    originates, MERS-member banks and entities can repeatedly assign a
    promissory note secured by that deed of trust to other MERS members without
    recording those transfers in a public-records office. Because it is the promissory
    note (not the deed of trust) that is assigned, there is, in theory, nothing to
    record. These assignments are therefore tracked on the MERS system for
    priority purposes, but not necessarily in counties’ land records. If a promissory
    note is transferred or negotiated to a non-MERS member, only then is an
    assignment of the deed of trust created and executed from MERS to the non-
    MERS member, and the assignee (the new deed of trust beneficiary) files the
    assignment in the public land records.
    In short, MERS streamlines successive sales of mortgages and makes
    these transfers cheaper. Banks no longer pay county recording fees after a
    MERS deed of trust is first recorded. Instead, they pay MERS membership and
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    transaction fees and record interim promissory-note assignments using the
    MERS system.
    II.   The Texas Recording System
    In Texas, county clerks are elected officials responsible for recording
    instruments that are presented to the clerk’s office and maintaining these
    instruments as “public property.” Tex. Const. art. V, § 20; Tex. Prop. Code Ann.
    § 11.004(a)(1); Tex. Loc. Gov’t Code Ann. § 201.005(a). A county clerk must
    record “within a reasonable time after delivery, any instrument authorized or
    required to be recorded in that clerk’s office that is proved, acknowledged, or
    sworn to according to law.” Tex. Prop. Code Ann. § 11.004(a)(1). “The county
    clerk shall record, exactly, without delay . . . the contents of each instrument
    that is filed for recording and that the clerk is authorized to record.” Tex. Loc.
    Gov’t Code Ann. § 191.001(c). Each time an instrument is accepted for
    recording, the county charges a recording fee for the service. Although deeds of
    trust are instruments that county clerks must record, promissory notes are
    not.
    The Dallas County clerk acknowledged that his employees do not try to
    determine whether the statements in an instrument are true. If the instrument
    presented for recording is “normal on its face,” the Dallas County clerk or a
    cashier at the clerk’s office will accept it. Indeed, “[i]f a document covered by a
    filing statute is regular on its face, the clerk may not refuse to file it based on
    extraneous facts.” Tex. Att’y Gen. Op. LO98-016, at 3. By statute, however, a
    clerk “shall” refrain from recording a document that he “believe[s] in good
    faith” creates a fraudulent lien so that he can consult the county or district
    attorney. Tex. Gov’t Code Ann. § 51.901(d). Dallas County did not use this
    mechanism to investigate whether a MERS deed of trust is fraudulent.
    Instead, it filed this lawsuit and continued accepting MERS deeds of trust for
    recording.
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    III.     Procedural History
    Dallas County originally filed this lawsuit in state court, and Defendants
    removed the case to federal court. Once removed, Dallas County amended its
    complaint to add class-action allegations, 2 and Harris and Brazoria Counties
    joined as plaintiffs. In May 2012, the Counties filed a Second Amended
    Complaint.
    The Counties’ claims are based on two overarching theories. First, the
    Counties allege that Bank of America and MERS fraudulently listed MERS as
    the beneficiary of deeds of trust that were recorded in the Counties’ land
    records. Second, the Counties allege that Defendants are required to record
    assignments of a deed of trust every time a MERS-member lender transfers its
    interest in a related promissory note to another MERS member. Based on these
    two theories, the Counties assert four claims that are relevant in this appeal 3:
    (1) violation of Texas Local Government Code § 192.007, (2) violation of Texas
    Civil Practice and Remedies Code § 12.002, (3) fraudulent misrepresentation,
    and (4) unjust enrichment. The Counties seek monetary damages, exemplary
    damages, and declaratory and injunctive relief.
    On May 23, 2012, the district court dismissed the Counties’ claim under
    section 12.002. After this dismissal, discovery continued on the Counties’
    remaining claims. Harris and Brazoria Counties ultimately settled most of
    their claims, leaving only their request for declaratory relief under section
    192.007. The Dallas County Commissioners Court never voted to approve this
    settlement, so Dallas County’s remaining claims moved forward pending
    2   The district court struck the class allegations, and the Counties do not appeal that
    ruling.
    The Counties also asserted claims for negligent misrepresentation, grossly negligent
    3
    misrepresentation, negligent undertaking, grossly negligent undertaking, negligence per se,
    gross negligence per se, and conspiracy. The dismissal of these claims was not raised on
    appeal.
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    summary judgment. Finally, in two separate orders in November 2013 and
    March 2014, the district court entered summary judgment on all of the
    remaining    claims,   including    Dallas   County’s   claims   for   fraudulent
    misrepresentation and unjust enrichment, and Harris and Brazoria Counties’
    section 192.007 claim. The district court entered final judgment in favor of
    Defendants on all claims. This timely appeal followed.
    STANDARDS OF REVIEW
    This court reviews a district court’s dismissal under Federal Rule of Civil
    Procedure 12(b)(6) de novo, “accepting all well-pleaded facts as true and
    viewing those facts in the light most favorable to the plaintiff.” Toy v. Holder,
    
    714 F.3d 881
    , 883 (5th Cir. 2013) (internal quotation marks omitted). This
    court also reviews a district court’s grant of summary judgment de novo,
    applying the same standards as the district court. Rogers v. Bromac Title
    Servs., L.L.C., 
    755 F.3d 347
    , 350 (5th Cir. 2014). We may affirm a district
    court’s Rule 12(b)(6) dismissal or grant of summary judgment on any grounds
    raised below and supported by the record. Id.; Raj v. La. State Univ., 
    714 F.3d 322
    , 330 (5th Cir. 2013).
    DISCUSSION
    Before this court, Harris and Brazoria Counties appeal the district
    court’s grant of summary judgment on their claim seeking a declaration that
    Texas Local Government Code § 192.007 imposed a duty to record assignments
    of deeds of trust when the interests in related promissory notes are transferred.
    Dallas County separately appeals the district court’s dismissal of its Texas
    Civil Practice and Remedies Code § 12.002 claim and the grant of summary
    judgment on its claims for fraudulent misrepresentation and unjust
    enrichment. Texas substantive law and federal procedural law apply to these
    state-law claims. See Erie R.R. Co. v. Tompkins, 
    304 U.S. 64
    , 78 (1938). The
    Texas Supreme Court, however, has not addressed any of these issues in the
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    context of MERS, so we must make an “Erie guess” and “determine as best [we]
    can” what the Supreme Court of Texas would decide. United States v. Marshall,
    
    771 F.3d 854
    , 878 (5th Cir. 2014) (internal quotation marks and citation
    omitted). We discuss each claim in turn.
    I.       Section 192.007
    Only Harris and Brazoria Counties appeal the entry of summary
    judgment on the section 192.007 claim. This claim presents two independent
    issues. The district court ruled on both. First, the district court held that it had
    no authority to grant the requested relief under the Declaratory Judgment Act,
    28 U.S.C. § 2201, because the Texas Legislature did not create a private right
    of action to enforce section 192.007. Second, the district court also held that
    even if there were a right of action, section 192.007 does not impose a duty to
    create and record assignments of deeds of trust when an interest in the related
    promissory note is transferred. We agree with the district court’s resolution of
    both issues.
    A. Private Right of Action
    We must first address the threshold issue of whether the Counties have
    identified a private right of action entitling them to declaratory relief under
    section 192.007. The Counties argue that if there is an actual controversy, then
    a declaratory action is automatically justiciable. In raising this argument, the
    Counties elide three basic concepts: jurisdiction, right of action, and remedy.
    To raise a claim in federal court, plaintiffs must demonstrate both that
    a federal court will have jurisdiction over their claim, and also that they (the
    plaintiffs) have a right of action to initiate that claim. In other words,
    establishing the court’s jurisdiction and the litigants’ right of action are two
    requirements that must be satisfied independently. See Nat’l R.R. Passenger
    Corp. v. Nat’l Ass’n of R.R. Passengers, 
    414 U.S. 453
    , 455–56 (1974)
    (recognizing that whether a private right of action exists and whether a federal
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    court has jurisdiction are two separate threshold questions). Within this
    framework, the issue of party standing factors into the court’s jurisdictional
    limits under Article III of the Constitution. See Lujan v. Defenders of Wildlife,
    
    504 U.S. 555
    , 560 (1992) (“[T]he core component of standing is an essential and
    unchanging part of the case-or-controversy requirement of Article III.”); see
    also Bond v. United States, 
    131 S. Ct. 2355
    , 2362 (2011) (noting that “cause of
    action” and “standing” are “distinct concepts”); 13A Charles Alan Wright et al.,
    Federal Practice & Procedure § 3531.6 (3d ed.) (noting the “general tendency
    to confuse cause-of-action concepts with standing”).
    Here, the district court had diversity jurisdiction over the Counties’
    state-law claims. See 28 U.S.C. § 1332. There was also an “actual controversy”
    between the parties over how to interpret section 192.007. The Counties
    therefore had Article III standing, and the district court had jurisdiction over
    their section 192.007 claim. The Counties nevertheless still have to show that
    they had a right of action to bring that claim in the first place. The Counties
    have failed to satisfy that requirement.
    The Counties do not contend that section 192.007 itself creates a private
    right of action. Instead, the Counties believe that the Declaratory Judgment
    Act provides a right to relief because there is an “actual controversy.” This
    argument is flawed because the Declaratory Judgment Act alone does not
    create a federal cause of action. “In a case of actual controversy within its
    jurisdiction,” the Declaratory Judgment Act only authorizes a federal court to
    “declare the rights and other legal relations of any interested party seeking
    such declaration.” 28 U.S.C. § 2201(a). In other words, the Act “enlarged the
    range of remedies available in the federal courts,” but it did not create a new
    right to seek those remedies. Skelly Oil Co. v. Phillips Petrol. Co., 
    339 U.S. 667
    ,
    671 (1950); see Okpalobi v. Foster, 
    244 F.3d 405
    , 423 n.31 (5th Cir. 2001) (“[T]he
    law makes clear that—although the Declaratory Judgment Act provides a
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    remedy different from an injunction—it does not provide an additional cause of
    action with respect to the underlying claim.”); Tex. Med. Ass’n v. Aetna Life Ins.
    Co., 
    80 F.3d 153
    , 158–59 (5th Cir. 1996) (holding that plaintiffs were not
    entitled to a declaratory judgment under the Texas Uniform Declaratory
    Judgment Act because they did not first identify a cause of action under the
    state statute that they were trying to enforce).
    Finally, the Counties also try to identify a cause of action in the advisory
    committee notes of Federal Rule of Civil Procedure 57. The notes state:
    “Written instruments, including ordinances and statutes, may be construed
    before or after breach at the petition of a properly interested party, process
    being served on the private parties or public officials interested.” Fed. R. Civ.
    P. 57 advisory committee’s note. Again, this argument fails because this note
    and Rule 57, like the Declaratory Judgment Act itself, do not create a
    substantive right to pursue relief in federal court. Instead, they only provide a
    new remedy if it “is otherwise appropriate.” Fed. R. Civ. P. 57; see also 10B
    Wright, supra, § 2754 (“The [Declaratory Judgment] Act and Rule 57 are not
    jurisdictional. They are procedural only and merely grant authority to the
    courts to use a new remedy in cases over which they otherwise have
    jurisdiction.”).
    Because the Declaratory Judgment Act is procedural and does not create
    an independent private right of action, the district court’s grant of summary
    judgment was therefore proper.
    B. Duty to Record
    Although Harris and Brazoria Counties’ section 192.007 claim
    independently fails because the Counties do not have a private right of action
    to seek declaratory relief under the statute, deciding whether section 192.007
    creates a duty to record is nevertheless central to resolving Dallas County’s
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    other claims. If there is no duty to record assignments, Dallas County’s claims
    must also fail.
    The Counties argue that once a deed of trust is recorded, section 192.007
    requires that any and all assignments of that deed of trust must be recorded.
    The Counties also contend that every time the promissory note that is secured
    by that deed of trust is transferred or negotiated, a deed-of-trust assignment
    must also be created and recorded.
    As primary support for these arguments, the Counties emphasize that
    the statute uses the word “must.” To be sure, the Counties are correct to orient
    their analysis on the plain language of the statute. “When we interpret a Texas
    statute, we follow the same rules of construction that a Texas court would
    apply—and under Texas law the starting point of our analysis is the plain
    language of the statute.” Forte v. Wal-Mart Stores, Inc., 
    780 F.3d 272
    , 277 (5th
    Cir. 2015) (internal quotation marks and citation omitted). Section 192.007
    states:
    (a) To release, transfer, assign, or take another action relating to
    an instrument that is filed, registered, or recorded in the office of
    the county clerk, a person must file, register, or record another
    instrument relating to the action in the same manner as the
    original instrument was required to be filed, registered, or
    recorded.
    (b) An entry, including a marginal entry, may not be made on a
    previously made record or index to indicate the new action.
    Tex. Loc. Gov’t Code Ann. § 192.007 (emphasis added). The central question is
    therefore: “must” what?
    The Counties read the statute to require that “a person must . . . record
    another instrument.” In support of this interpretation, the Counties emphasize
    that the statute is directed at “a person,” instead of at a county clerk
    specifically. Therefore, the Counties argue, MERS must record all
    assignments.
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    The Counties’ reading of the statute is incomplete. Read more
    completely, subsection (a) states that if an “original instrument was required
    to be . . . recorded” in a particular manner, later documents “relating to” the
    original document must be recorded “in the same manner.” 
    Id. § 192.007(a).
    The statute does not state that “a person must . . . record another instrument,”
    full stop. Subsection (a) dictates the “manner” in which subsequent documents
    must be recorded; it does not impose an affirmative duty to record those
    instruments in the first place. 4
    This interpretation of subsection (a) is consistent with subsection (b). See
    Lamar Homes, Inc. v. Mid-Continent Cas. Co., 
    242 S.W.3d 1
    , 19 (Tex. 2007)
    (“In determining [a statute’s] meaning, we must also consider the statute as a
    whole and construe it in a manner which harmonizes all of its various
    provisions.”). Subsection (b) states: “An entry, including a marginal entry, may
    not be made on a previously made record or index to indicate the new action.”
    Tex. Loc. Gov’t Code Ann. § 192.007(b). Subsection (a)’s requirement that
    “another instrument” be recorded “in the same manner as the original
    instrument” is consistent with subsection (b)’s instruction not to make
    notations in the margins of existing records. 5 Both subsections focus on the
    manner of recording.
    4 Some state legislatures have imposed a duty to record. See, e.g., Ky. Rev. Stat. Ann.
    § 382.360(3); Minn. Stat. Ann. § 580.02(3). But the Texas Legislature has not.
    5 Defendants contend that these provisions were adopted when county clerks began
    microfilming land records. Separate instruments had to be filed because clerks could not
    write on microfilms. The Counties cite conflicting testimony from a county clerk who testified
    in 2012 about her involvement in drafting section 192.007, which she contends imposes a
    recording requirement. This testimony, however, is not relevant because the county clerk was
    not a member of the legislature that drafted the original provision and she made all of these
    statements after this lawsuit was filed, not before the provision was adopted. See In re
    Sullivan, 
    157 S.W.3d 911
    , 918 (Tex. App. 2005) (“[C]omments by nonlegislators, made after
    the Texas Legislature enacted the statute in question . . . are not legislative history, nor are
    they otherwise relevant to the statutory-construction issue at hand.”).
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    Next, the placement of section 192.007 in Texas’s statutory code supports
    that it was a procedural directive to county clerks, not a recording mandate to
    the public. As the district court noted, the Texas Legislature placed section
    192.007 in the Local Government Code—which governs the operation of county
    and municipal governments—not the Property Code—which governs the
    public’s real-property rights and duties. Reinforcing this point, chapter 192,
    entitled “Instruments to be Recorded by Counties” (emphasis added), governs
    which instruments clerks must record and how clerks are required to record
    them. See, e.g., 
    id. § 192.001
    (“The county clerk shall record each deed . . . that
    is required or permitted by law to be recorded.”), § 192.002(a) (“The county
    clerk shall record [military discharge records].”), § 192.006(b) (“The county
    clerk shall keep the records of the county court properly indexed and
    arranged.”). None of these provisions is directed to the public.
    Significantly, in dicta and in unpublished opinions, this court has
    already explained that it discerns no duty to record in the text of section
    192.007. See Reinagel v. Deutsche Bank Nat’l Trust Co., 
    735 F.3d 220
    , 228 n.27
    (5th Cir. 2013) (“[T]his obscure provision has never been cited in a state court
    decision and is best read as a procedural directive to county clerks, not as a
    prerequisite to the validity of assignments.”); see also Rojas v. Wells Fargo
    Bank, N.A., 571 F. App’x 274, 279 (5th Cir. 2014) (per curiam) (quoting
    
    Reinagel, 735 F.3d at 228
    n.27); Green v. JP Morgan Chase Bank, N.A., 562 F.
    App’x 238, 241 (5th Cir. 2014) (per curiam) (same); Hudson v. JP Morgan
    Chase Bank, N.A., 541 F. App’x 380, 384 (5th Cir. 2013) (per curiam) (“[Section]
    192.007 does not impose upon [a lender] a duty to record the assignment of the
    deed of trust.”); cf. KCB Equities, Inc. v. HSBC Bank USA, Nat’l Ass’n, No. 05-
    10-01648-CV, 
    2012 WL 1985899
    , at *2 (Tex. App. June 4, 2012) (recognizing
    that there is no legal authority that requires recording promissory-note
    assignments). Even though all of these cases involved foreclosure disputes, not
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    recording disputes, these cases are persuasive authority supporting our
    holding that section 192.007 does not impose a duty to record on the public. See
    United States v. Castellon-Aragon, 
    772 F.3d 1023
    , 1025 (5th Cir. 2014); Ayoub
    v. I.N.S., 
    222 F.3d 214
    , 215 (5th Cir. 2000) (per curiam).
    This interpretation is also consistent with Texas property law generally.
    Texas’s recording system is a permissive, not a mandatory, system:
    “instrument[s] concerning real or personal property may be recorded.” Tex.
    Prop. Code Ann. § 12.001(a) (emphasis added). Unrecorded instruments
    relating to real property remain valid between the parties; however, the holder
    of the instrument may lose priority. See 
    id. § 13.001(b);
    see also Denson v. First
    Bank & Trust of Cleveland, 
    728 S.W.2d 876
    , 877 (Tex. App. 1987) (“[I]t is a
    well-reasoned rule of law that neither the acknowledgment nor recordation of
    a deed of trust is necessary to make it a valid and binding obligation between
    the immediate parties thereto.”). If an original document is not required to be
    recorded, it would be inconsistent to hold that subsequent documents related
    to the original must be recorded.
    Finally, this interpretation does not promote unperfected security
    interests or run afoul of the “split-the-note” theory, as the Counties contend.
    Under the split-the-note theory, transferring a note without the deed of trust
    “splits” the note from the deed and renders them both null. See Martins v. BAC
    Home Loans Servicing, L.P., 
    722 F.3d 249
    , 254 (5th Cir. 2013). “In order to
    foreclose, the [split-the-note] theory goes, a party must hold both the note and
    the deed of trust.” 
    Id. But contrary
    to this theory, the Texas Supreme Court
    has held that the sale of a promissory note transfers the rights in the deed of
    trust to the new noteholder regardless of whether the deed is actually
    transferred as well. See Pope v. Beauchamp, 
    219 S.W. 447
    , 449 (Tex. 1920)
    (explaining that if an “executed contract” or promissory note is transferred,
    “the mortgage [deed of trust] passes with it, ipso facto, without assignment in
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    words, and, by the weight of authority, with the properties of the principal
    instrument itself” (citation omitted)). In other words, if the note is assigned,
    then the new noteholder has the right to foreclose on the property identified in
    the deed of trust that secures the note, whether or not the noteholder also
    possesses or is assigned the deed of trust. The beneficiary of the deed of trust
    likewise has the right to foreclose. Thus, in Texas, the holder of the promissory
    note and the beneficiary of the deed of trust can be two separate individuals or
    entities.
    More recently, this court, interpreting Texas law, has explicitly rejected
    the split-the-note theory in the context of MERS transfers. 6 See 
    Martins, 722 F.3d at 254
    . In Martins, we emphasized that Texas courts view the note and
    deed as separate obligations. See 
    id. at 255.
    Thus, in Texas, a deed of trust
    gives both the lender (here, Bank of America) and the beneficiary (here, MERS)
    “the right to invoke the power of sale, even though it would not be possible for
    both to hold the note.” 
    Id. (internal quotation
    marks and citation omitted).
    Transferring a promissory note among MERS members does not render the
    related deed of trust void, even if MERS, and not a MERS-member bank, is the
    beneficiary of the deed. As a result, MERS does not have to re-record a deed of
    trust to maintain a perfected security interest in the property. The Counties
    do not cite Martins in their briefs or make any effort to distinguish it.
    In sum, section 192.007’s plain text, its placement in Texas’s statutory
    code, and basic Texas property law confirm that section 192.007 is a procedural
    directive to county clerks about how to record subsequent documents. It is not
    an affirmative mandate to the public that deed-of-trust beneficiaries must
    6 Although there is variation on this issue state by state, Texas is not alone in its
    rejection of the split-the-note theory. See, e.g., In re Mortg. Elec. Registration Sys., Inc., 
    754 F.3d 772
    , 786 (9th Cir. 2014) (interpreting Nevada law); Macon Cnty., Ill. v. MERSCORP,
    Inc., 
    742 F.3d 711
    , 712 (7th Cir. 2014) (interpreting Illinois law); Culhane v. Aurora Loan
    Servs. of Neb., 
    708 F.3d 282
    , 292 (1st Cir. 2013) (interpreting Massachusetts law).
    14
    Case: 14-10392      Document: 00513095770        Page: 15    Date Filed: 06/26/2015
    No. 14-10392
    record assignments of either the deed of trust itself or the related promissory
    note. We therefore elevate Reinagel’s dictum to the holding of this case: section
    192.007 imposes no duty to record.
    II.    Section 12.002
    Only Dallas County challenges the dismissal of the remaining claims
    raised on appeal. First, Dallas County contends that the district court erred by
    dismissing its fraudulent-lien claim. Texas Civil Practice and Remedies Code
    § 12.002 authorizes statutory or actual damages for persons injured by
    fraudulent liens. A section 12.002 claim has three elements:
    [T]he defendant (1) made, presented, or used a document with
    knowledge that it was a “fraudulent lien or claim against real or
    personal property or an interest in real or personal property,”
    (2) intended that the document be given legal effect, and
    (3) intended to cause the plaintiff physical injury, financial injury,
    or mental anguish.
    Henning v. OneWest Bank FSB, 
    405 S.W.3d 950
    , 964 (Tex. App. 2013) (quoting
    Tex. Civ. Prac. & Rem. Code Ann. § 12.002(a)). The party asserting a claim
    under section 12.002 has the burden of proof. See James v. Calkins, 
    446 S.W.3d 135
    , 149 (Tex. App. 2014).
    The district court dismissed Dallas County’s section 12.002 claim under
    Rule 12(b)(6), holding that Dallas County failed to plead the third element of
    the claim. 7 The district court emphasized that, instead of alleging that
    Defendants intended to cause a cognizable financial injury to the County,
    Dallas County only alleged that Defendants intended to avoid the costs and
    filing fees associated with filing, registering, or recording subsequent
    documents. The district court further reasoned that Dallas County could not
    7 Because the district court dismissed this claim under Rule 12(b)(6), we limit our
    analysis to the allegations in the Counties’ Second Amended Complaint—the operative
    complaint when the district court ruled on the motion to dismiss.
    15
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    No. 14-10392
    suffer injury under section 12.002 until someone filed a document. The district
    court therefore concluded that Defendants’ choice not to file a document did
    not injure the County.
    The allegations in the Second Amended Complaint support the district
    court’s conclusion. Dallas County alleged that Defendants “intended . . . to
    financially injure Plaintiffs . . . by avoiding the costs and filing fees associated
    with filing, registering, or recording subsequent releases, transfers,
    assignments, or other action relating to such instrument as required by Texas
    law.” In other words, Dallas County alleged that it was injured by fraudulent
    MERS deeds of trust because they allowed Defendants to avoid filing future
    assignment documents in the county records.
    Dallas County’s alleged injury is mistakenly premised on the argument
    that Texas law imposes a duty to record subsequent assignments. But as we
    resolved above, Defendants were not required to record assignments if a
    MERS-member sold its interest in a promissory note secured by a MERS deed
    of trust. Defendants were always entitled to choose not to make future filings,
    regardless of what filings they had made in the past. Because recording the
    original document is optional, it would defy logic and the statutory text to make
    recording future assignments mandatory.
    The conclusion then follows that if Defendants can always choose not to
    record assignments, they could not have intended to injure Dallas County.
    Moreover, governmental entities are not entitled to compensation unless they
    first perform a public service. See Maverick Cnty. Water Control &
    Improvement Dist. #1 v. State, 
    456 S.W.2d 204
    , 207 (Tex. Civ. App. 1970)
    (adopting the view that a county agency could not assess a fee for a service
    “neither received nor requested”); Carpenter v. Arroyo-Colo. Nav. Dist. of
    Cameron & Willacy Cntys., 
    111 S.W.2d 822
    , 823 (Tex. Civ. App. 1937) (holding
    that a county commissioner could not receive compensation for services he did
    16
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    No. 14-10392
    not perform); Earnest v. Couch, 
    81 S.W.2d 761
    , 762 (Tex. Civ. App. 1935)
    (holding that county tax assessor was not entitled to a fee when he did “not . . .
    perform[] that duty, or actually earn[] that fee”). Because Dallas County was
    not entitled to a fee in the first place, it could not have suffered a financial
    injury.
    In reply, Dallas County argues that Defendants have conflated the
    County’s authority to charge a fee and its entitlement to damages. According
    to Dallas County, its authority to charge fees is irrelevant because it does not
    have to prove actual damages under the statute. See Vanderbilt Mortg. & Fin.,
    Inc. v. Flores, 
    692 F.3d 358
    , 370, 372 (5th Cir. 2012) (holding that plaintiffs are
    still entitled to pursue section 12.002 claims even when they have not alleged
    actual damages). The problem, however, is not that the County failed to allege
    actual damages, but that it failed to allege a cognizable injury. The issue of
    how damages should be assessed—whether statutory damages or actual
    damages—is only reached if there is a violation of the statute. See Tex. Civ.
    Prac. & Rem. Code Ann. § 12.002(b). But because there is no duty to record,
    the Defendants did not violate the statute because they could not have
    intended to injure the County by avoiding future filing fees. Dallas County
    therefore failed to state a claim under section 12.002. 8
    III.   Fraudulent Misrepresentation
    Dallas County’s common law claim for fraudulent misrepresentation
    similarly fails. This claim is based on the provision in MERS deeds of trust
    that states: “MERS is a beneficiary under this Security Instrument.”
    Dallas County contends that this statement is false because MERS has no
    interest in the debt or the promissory note secured by the deed of trust and
    8  Because we can resolve this issue on the third element of the claim, we need not
    address whether Dallas County identified a private right of action to enforce section 12.002
    in the first place.
    17
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    therefore cannot be the beneficiary of the deed of trust. Dallas County further
    believes that it is injured by this alleged misrepresentation because it corrupts
    the County’s land records.
    Under Texas law, a plaintiff seeking to prevail on a fraudulent-
    misrepresentation claim must prove: (1) a material misrepresentation; (2) the
    representation was false; (3) the defendant either knew the representation was
    false or recklessly asserted it without knowledge of its truth; (4) the defendant
    intended that the plaintiff should act upon the representation; (5) the plaintiff
    acted in reliance on the representation; and (6) the plaintiff was injured as a
    result. Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 
    341 S.W.3d 323
    , 337 (Tex. 2011). The district court granted summary judgment on the
    fraudulent-misrepresentation claim, focusing on the fifth and sixth elements:
    reliance and injury. We agree with the district court’s conclusion on these
    elements and also discuss whether the Defendants even made a false
    representation in the first place.
    A. False Representation
    First, designating MERS as a “beneficiary” of the deeds of trust was not
    a false representation. 9 As a matter of basic contract law, MERS is a
    beneficiary. “Texas courts have consistently held that the terms set out in a
    deed of trust must be strictly followed.” Univ. Sav. Ass’n v. Springwoods
    Shopping Ctr., 
    644 S.W.2d 705
    , 706 (Tex. 1982); see also Mathis v. DCR Mortg.
    III Sub I, L.L.C., 
    389 S.W.3d 494
    , 507 (Tex. App. 2012) (“The rules of
    interpretation that apply to contracts also apply to notes and deeds of trust.”).
    Here, MERS is explicitly designated as a beneficiary in the deeds of trust. The
    9  Dallas County also argues that MERS falsely identified itself as the “lender,” the
    “holder of note and lien,” and the “payee.” Even assuming these representations are false,
    Dallas County still has failed to raise a genuine issue of material fact on its fraudulent-
    misrepresentation claim because it has failed to identify a fact issue on the reliance and
    injury elements of the claim, as discussed below.
    18
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    No. 14-10392
    borrowers who executed these deeds agreed to this arrangement. See Athey v.
    Mortg. Elec. Registration Sys., Inc., 
    314 S.W.3d 161
    , 162, 165–66 (Tex. App.
    2010) (affirming that MERS was the beneficiary of a deed of trust, even though
    it did not hold the promissory note that the deed secured, when the deed of
    trust named MERS the beneficiary).
    Resisting this conclusion, Dallas County contends that, despite the
    language in the MERS deeds of trust, MERS knew that it was not a beneficiary
    because it has admitted that it acts only in a nominee capacity and has no
    interest in the debt or promissory note secured by the deed of trust. It is true
    that the deeds of trust state both that “MERS is a beneficiary under this
    Security Instrument,” and also that MERS acts “solely as a nominee for Lender
    and Lender’s successors and assigns.” But as discussed above, nothing is
    legally inconsistent with this arrangement because Texas courts do not apply
    the split-the-note theory. “The duality of the lien and note means that the
    beneficiary of the lien can be different from the holder of the note.” Wiley v.
    Deutsche Bank Nat’l Trust Co., 539 F. App’x 533, 536 (5th Cir. 2013) (per
    curiam). The borrower agrees to listing MERS as beneficiary of the deed of
    trust. MERS and the lender, in turn, agree that MERS will serve as the
    lender’s nominee. In other words, because of the duality of the note and lien, it
    is possible that MERS could simultaneously be the principal of the lien and the
    agent of the lender who holds the note. Thus, in Texas, it is not inconsistent
    for the deed of trust to label MERS both as a “nominee” and as a “beneficiary.”
    Apart from the language in the deeds of trust themselves, the Texas
    Legislature has also granted MERS authority to serve as beneficiaries in deeds
    of trust. The Texas Legislature amended chapter 51 of the Texas Property
    Code—the chapter governing foreclosure proceedings—to include “book entry
    system” in the definition of “mortgagee,” thus reinforcing that MERS has the
    right to file foreclosure actions. See Tex. Prop. Code Ann. § 51.0001(1), (4)(B);
    19
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    see also L’Amoreaux v. Wells Fargo Bank, N.A., 
    755 F.3d 748
    , 750 (5th Cir.
    2014) (per curiam); Farkas v. GMAC Mortg., L.L.C., 
    737 F.3d 338
    , 342 (5th Cir.
    2013) (per curiam); 
    Martins, 722 F.3d at 255
    ; 
    Athey, 314 S.W.3d at 166
    . It is
    true that, as Amicus Bexar County points out, this definition only applies
    “[i]n . . . chapter [51].” But this limitation does not suggest that the Texas
    Legislature simultaneously intended to eliminate MERS’s right to serve as
    beneficiary of deeds of trust. Indeed, it would be inconsistent to assert that,
    although MERS is statutorily authorized to file foreclosure actions, it cannot
    at the same time record its interest in deeds of trust, which give it the right to
    foreclose in the first place. In short, Defendants have made no false
    representation by presenting deeds of trust that designate MERS as
    beneficiary.
    B. Reliance
    Next, as the district court held, Dallas County also offered no evidence
    that it detrimentally relied on the allegedly false MERS deeds of trust. The
    Dallas County clerk testified that county clerks and their cashiers will accept
    a deed of trust for recording as long as it appears “normal on its face.” Then, if
    MERS is listed as the beneficiary, clerks file the deed of trust in the index with
    MERS listed as the grantee. As a result, Dallas County believes reliance “is
    inherent in the very ministerial nature of recording deed instruments” because
    the County “relies upon filers to truthfully and accurately represent each
    party’s interests.”
    This type of reliance is not reliance sufficient to create an issue of fact on
    a fraud claim. Reliance requires a change in position based on an alleged
    misrepresentation. See Coffel v. Stryker Corp., 
    284 F.3d 625
    , 636 (5th Cir.
    2002) (“[F]raud does not exist unless the defendant’s representations induced
    the plaintiff to take a particular course of action.” (citing Johnson & Johnson
    Med., Inc. v. Sanchez, 
    924 S.W.2d 925
    , 930 (Tex. 1996))). “‘[D]etrimental
    20
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    reliance does not consist of the performance of pre-existing obligations that are
    properly compensated.’” Thanksgiving Tower Partners v. Anros Thanksgiving
    Partners, 
    64 F.3d 227
    , 233 (5th Cir. 1995) (quoting Regent Int’l Hotels, Ltd. v.
    Las Colinas Hotels Corp., 
    704 S.W.2d 101
    , 105 (Tex. App. 1985)). Here, county
    clerks receive a fee for fulfilling their statutory obligation of recording
    documents exactly as they are presented. See Tex. Loc. Gov’t Code Ann.
    § 191.001(c); Tex. Prop. Code Ann. § 11.004(a)(1), (b); see also Cobra Oil & Gas
    Corp. v. Sadler, 
    447 S.W.2d 887
    , 896 (Tex. 1968) (“The duties of a county clerk
    or other recorder of public documents are ministerial in nature.”). More to the
    point, what the county clerk does here—index a MERS deed of trust with
    MERS as grantee—is required by law. See Tex. Loc. Gov’t Code Ann.
    § 193.002(b); 
    id. § 193.009
    (stating that instruments “must be alphabetically
    indexed and cross-indexed in the indexes to that official public record under
    the names of the parties identified in the instrument” (emphasis added)); see
    also Att’y Gen. Op. GA-0702, at 1.
    C. Injury
    Finally, the district court also correctly held that there was no genuine
    issue of fact as to whether Dallas County suffered an injury arising from any
    reliance on the purported misrepresentation. “To recover for fraud, the plaintiff
    must plead and prove that a pecuniary loss was suffered as a result of reliance
    upon a false representation.” 
    Coffel, 284 F.3d at 637
    (emphasis added) (citing
    DiGrazia v. Atl. Mut. Ins. Co., 
    944 S.W.2d 731
    , 735 (Tex. App. 1997)). The
    district court first reasoned that Dallas County chiefly complained of lost
    recording fees, which, as it held earlier, were not an actionable pecuniary loss.
    The district court then rejected the County’s alternative theory that it was
    harmed because the allegedly false deeds corrupted the land records. The
    district court emphasized that the County could not be injured on this basis
    because it had no ownership interest in the land records themselves and also
    21
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    No. 14-10392
    because there was no evidence that the records had been corrupted. In
    particular, it noted that there was no evidence that the county clerk had
    received any complaints or suffered harm because of MERS deeds of trust
    being recorded.
    Dallas County does not appeal the district court’s first rationale: that
    lost recording fees were not a compensable injury. Indeed, as discussed above,
    the government cannot recover a fee unless it first provides a service. And here,
    every time Dallas County recorded a MERS deed of trust, Dallas County
    received a fee for that service. Thus, based on fees alone, there is no pecuniary
    loss.
    Next, Dallas County continues to argue on appeal that the alleged
    misrepresentation corrupted county deed records. 10 According to Dallas
    County, it has an interest in preserving the integrity of these records primarily
    because the county clerk is the records custodian for the County. See Hooten v.
    Enriquez, 
    863 S.W.2d 522
    , 530 (Tex. App. 1993). The reliability of the records
    is diminished, says Dallas County, because MERS filings are “opaque and
    inaccurate.”
    The County, however, does not have an ownership interest in these
    records. Instead, it has a duty to maintain the records, which are, in turn,
    considered “public property.” Tex. Loc. Gov’t Code Ann. § 201.005(a); cf. Nobles
    v. Marcus, 
    533 S.W.2d 923
    , 927 (Tex. 1976) (recognizing that only a defrauded
    party can maintain a suit to set aside a fraudulent deed). Moreover, even
    10Dallas County also argues that it is injured by MERS filings because it will have to
    remediate the records so that the correct entities are listed as having an interest in the
    property. Because Dallas County raised this argument for the first time in its motion for
    reconsideration in the district court, we will not consider it. See U.S. Bank Nat’l Ass’n v.
    Verizon Commc’ns, Inc., 
    761 F.3d 409
    , 425 (5th Cir. 2014) (“This court will typically not
    consider an issue or a new argument raised for the first time in a motion for reconsideration
    in the district court.”).
    22
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    setting aside the issue of ownership, there is nothing in the record that
    suggests that the land records are inaccurate. The clerk’s duty is to record
    documents “exactly” as they are filed. Tex. Loc. Gov’t Code Ann. § 191.001(c).
    If MERS is listed as a grantee for certain deeds of trust, that is because it is
    identified on those deeds as a beneficiary. Therefore, contrary to Dallas
    County’s argument, the land records are actually accurate because they are
    indexing these deeds under MERS’s name. Whether MERS actually has a legal
    right related to the property identified in the deed of trust is a different issue,
    independent from the issue of accurate land records. Therefore, because Dallas
    County was not injured by an alleged fraud, Dallas County’s fraudulent
    misrepresentation must fail.
    IV.   Unjust Enrichment
    Finally, the district court also granted summary judgment on Dallas
    County’s unjust-enrichment claim. Texas courts recognize that “unjust
    enrichment is not an independent claim; rather it is a theory of recovery that
    characterizes the result of a failure to make restitution of benefits either
    wrongfully or passively received under circumstances which give rise to an
    implied or quasi-contractual obligation to repay.” McCullough v. Scarbrough,
    Medlin & Assocs., Inc., 
    435 S.W.3d 871
    , 891 (Tex. App. 2014) (internal
    quotation marks and citation omitted). “A party may recover under the unjust
    enrichment theory when one person has obtained a benefit from another by
    fraud, duress, or the taking of an undue advantage.” Heldenfels Bros. v. City of
    Corpus Christi, 
    832 S.W.2d 39
    , 41 (Tex. 1992).
    In granting summary judgment, the district court reasoned that the
    unjust-enrichment claim must fail because any benefit from recording a
    mortgage was derived not from the county clerk, but from Texas law
    recognizing lien priority. This conclusion was correct. First, the Texas
    Legislature, not Dallas County, provided the “benefit” of lien priority. Lien
    23
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    No. 14-10392
    priority in Texas is determined by statute. If the beneficiary of a lien records a
    deed of trust, that beneficiary has priority over any other interests that were
    not previously recorded. See Tex. Prop. Code Ann. §§ 13.001(a), 13.002.
    On appeal, Dallas County argues that the benefit of first priority never
    would have accrued if the original deed of trust had not been recorded in the
    Dallas County land records. Defendants, however, paid for that benefit. Next,
    Dallas County also argues that because Defendants do not file deed-of-trust
    assignments when MERS members transfer promissory notes, Defendants
    were unjustly enriched by avoiding the filing fees for recording these
    assignments. Again though, because there is no duty to record deeds of trust
    or assignments under Texas law, Defendants were entitled to make this choice.
    Their conduct therefore was not unjust. 11 We therefore affirm summary
    judgment on Dallas County’s unjust-enrichment claim.
    CONCLUSION
    For these reasons, we AFFIRM the judgment of the district court,
    dismissing all of the Counties’ claims.
    11The Sixth, Seventh, and Eighth Circuits have reached similar conclusions when
    dealing with unjust-enrichment claims that counties and county clerks have filed against
    MERS. See Cnty. of Ramsey v. MERSCORP Holdings, Inc., 
    776 F.3d 947
    , 950–51 (8th Cir.
    2014); Macon Cnty., 
    Ill., 742 F.3d at 713
    –14; Brown v. Mortg. Elec. Registration Sys., Inc.,
    
    738 F.3d 926
    , 934–35 (8th Cir. 2013); Christian Cnty. Clerk ex rel. Kem v. Mortg. Elec.
    Registration Sys., Inc., 515 F. App’x 451, 459–60 (6th Cir. 2013).
    24
    

Document Info

Docket Number: 14-10392

Citation Numbers: 791 F.3d 545

Filed Date: 6/26/2015

Precedential Status: Precedential

Modified Date: 1/12/2023

Authorities (23)

Okpalobi v. Foster , 244 F.3d 405 ( 2001 )

Texas Medical Ass'n v. Aetna Life Insurance , 80 F.3d 153 ( 1996 )

Ayoub v. Immigration & Naturalization Service , 222 F.3d 214 ( 2000 )

Kenneth L. Coffel, Cross-Appellee v. Stryker Corporation , 284 F.3d 625 ( 2002 )

Erie Railroad v. Tompkins , 58 S. Ct. 817 ( 1938 )

Skelly Oil Co. v. Phillips Petroleum Co. , 70 S. Ct. 876 ( 1950 )

Nobles v. Marcus , 533 S.W.2d 923 ( 1976 )

Heldenfels Bros. v. City of Corpus Christi , 832 S.W.2d 39 ( 1992 )

University Savings Ass'n v. Springwoods Shopping Center , 644 S.W.2d 705 ( 1982 )

Johnson & Johnson Medical, Inc. v. Sanchez , 924 S.W.2d 925 ( 1996 )

Pope v. Beauchamp , 110 Tex. 271 ( 1920 )

National Railroad Passenger Corporation v. National Assn. ... , 94 S. Ct. 690 ( 1974 )

Lujan v. Defenders of Wildlife , 112 S. Ct. 2130 ( 1992 )

Bond v. United States , 131 S. Ct. 2355 ( 2011 )

Hooten v. Enriquez , 863 S.W.2d 522 ( 1993 )

In Re Sullivan , 157 S.W.3d 911 ( 2005 )

Athey v. Mortgage Electronic Registration Systems, Inc. , 314 S.W.3d 161 ( 2010 )

Denson v. First Bank & Trust of Cleveland , 728 S.W.2d 876 ( 1987 )

Regent International Hotels, Ltd. v. Las Colinas Hotels ... , 704 S.W.2d 101 ( 1985 )

Maverick County Water Control & Improvement District 1 v. ... , 456 S.W.2d 204 ( 1970 )

View All Authorities »