El Paso County Texas v. Bank of America Cor , 557 F. App'x 383 ( 2014 )

Case: 13-30103 Document: 00512550423 Page: 1 Date Filed: 03/05/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 5, 2014
No. 13-30103
Lyle W. Cayce
Clerk
DOUG WELBORN, In His Official Capacity as Clerk of Court of Nineteenth
Judicial District for the Parish of East Baton Rouge, Louisiana; MARK J.
GRAFFEO, In His Official Capacity as Clerk of Court of the Eighth Judicial
District for the Parish of West Baton Rouge, Louisiana; GERALD W
HARRINGTON, In His Official Capacity as Clerk of Court of the Thirty-
Third Judicial District for the Parish of Allen, Louisiana; KERMIT HART
BOURQUE, In His Official Capacity as Clerk of Court of the Twenty-Third
Judicial District for the Parish of Ascension, Louisiana; DARLENE
LANDRY, In Her Official Capacity as Clerk of Court of the Twenty-Third
Judicial District for the Parish of Assumption, Louisiana; ET AL,
Plaintiffs-Appellants
v.
BANK OF NEW YORK MELLON CORPORATION; BANK OF AMERICA;
CITI MORTGAGE, INCORPORATED; GMAC RESIDENTIAL FUNDING
CORPORATION; HSBC FINANCE CORPORATION; MERRILL LYNCH
CREDIT CORPORATION; NATIONWIDE ADVANTAGE MORTGAGE
COMPANY; SUNTRUST MORTGAGE, INCORPORATED; UNITED
GUARANTY CORPORATION; WELLS FARGO BANK, N.A.; DEUTSCHE
BANK, A.G.; U.S. BANK; J.P. MORGAN CHASE BANK, N.A.; HSBC BANK
USA, N.A.; LASALLE BANK, N.A.,
Defendants-Appellees
Appeal from the United States District Court
for the Middle District of Louisiana
USDC No. 3:12-CV-220
Case: 13-30103 Document: 00512550423 Page: 2 Date Filed: 03/05/2014
No. 13-30103
Consolidated with
No. 13-50080
Consolidated with
No. 13-50080
EL PASO COUNTY TEXAS; CASS COUNTY, TEXAS; HIDALGO COUNTY
TEXAS; KAUFMAN COUNTY TEXAS; NAVARRO COUNTY TEXAS;
PANOLA COUNTY, TEXAS; RUSK COUNTY, TEXAS; SMITH COUNTY
TEXAS; STARR COUNTY, TEXAS; WEBB COUNTY TEXAS; LAMAR
COUNTY TEXAS,
Plaintiffs-Appellants
v.
BANK OF AMERICA CORPORATION; CITIMORTGAGE,
INCORPORATED; HSBC FINANCE CORPORATION; MERRILL LYNCH
CREDIT CORPORATION; NATIONWIDE ADVANTAGE MORTGAGE
COMPANY; SUNTRUST MORTGAGE, INCORPORATED; WASHINGTON
MUTUAL BANK; WELLS FARGO BANK, N.A.; THE BANK OF NEW YORK
MELLON; US BANK N.A.; JP MORGAN CHASE BANK, N.A.; HSBC BANK
USA, N.A.; LASALLE BANK, N.A.; DEUTSCHE BANK TRUST COMPANY
AMERICAS,
Defendants-Appellees
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:12-CV-705
Before STEWART, Chief Judge, and GARZA and SOUTHWICK, Circuit
Judges.
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Case: 13-30103 Document: 00512550423 Page: 3 Date Filed: 03/05/2014
No. 13-30103
Consolidated with
No. 13-50080
PER CURIAM:*
The Plaintiffs-Appellants appeal from district court orders dismissing
their civil RICO complaints. For the following reasons, we AFFIRM.
I
The Plaintiffs-Appellants in this consolidated appeal are County and
Parish government bodies or officials responsible for maintaining local land
recording records (“Land Recorders”). Their responsibilities include recording
mortgages under the Louisiana and Texas recording statutes, and they assess
fees for this public service. The Defendant-Appellees are banks, and other
financial companies, that are members of the Mortgage Electronic Registration
System, Inc. registration system (“MERS”). Under MERS, members can
transfer interests to other members without formally assigning and re-
recording the underlying mortgage in local offices. To achieve this, members
list MERS as nominee or beneficiary on the mortgage or deed of trust initially
recorded in a local office. Subsequent transfers among members, however, are
tracked internally. The upshot is that MERS members will record mortgages
in local offices less frequently. The Land Recorders allege that fraudulent
statements about the legal effect of MERS—sufficient to constitute federal
mail or wire fraud—caused fewer filings in their offices, which in turn injured
them by decreasing fee revenues and damaging the general accuracy of the
records.
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 13-30103
Consolidated with
No. 13-50080
The Land Recorders filed single-count complaints 1 against the MERS
members under the civil provision of the RICO statute, 18 U.S.C. § 1964(c).
The MERS members responded with motions to dismiss, arguing, inter alia,
that the complaints failed to state a claim under FED. R. CIV. P. 12(b)(6).
The Louisiana district court dismissed on the theory that “it is
inconsistent with legislative intent to allow the Plaintiffs to bring a RICO claim
which seeks to enforce the [Trust Indenture Act of 1939, 15 U.S.C. § 77aaa, et
seq. (“TIA”)].” Eight days later, the Texas district court adopted this rationale
and dismissed on the same grounds. According to the Land Recorders, the TIA
was cited in the complaints as the purported source of a duty to record
mortgages. The Land Recorders assert the TIA’s sole purpose in the complaints
was to establish but-for causation for the RICO claims. On appeal, they submit
the district courts erred in determining they sought to “enforce” this statute.
Because we may affirm the district court on any grounds raised below
and supported by the record, see Raj v. Louisiana State University, 714 F.3d
322, 330 (5th Cir. 2010), we do not determine whether the complaints sought
to enforce the TIA, or whether this is permitted through civil RICO. Dismissal
under Rule 12(b)(6) is proper because the complaints fail to adequately plead
a RICO injury to the Land Recorders’ “business or property.” 2
1The operative pleading documents are the Second Amended Complaint in No.13-
30103, and the First Amended Complaint in No. 13-50080.
2 We review a district court’s dismissal under Rule 12(b)(6) de novo. See Toy v. Holder,
714 F.3d 881, 883 (5th Cir. 2013). At this stage, the court must accept “all well-pleaded facts
as true,” and it must view “those facts in the light most favorable to the plaintiff.” Id. Under
the Iqbal standard, “a complaint must contain sufficient factual matter, accepted as true, to
state a claim to relief that is plausible on its face.” Id. (quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)). In short, 12(b)(6) is a test to determine if a legally cognizable claim for relief
has been presented. See generally 5B CHARLES ALAN WRIGHT, ARTHUR MILLER & MARY KAY
KANE, FEDERAL PRACTICE AND PROCEDURE § 1357 (3d ed. 2013).
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No. 13-30103
Consolidated with
No. 13-50080
II
Under the civil RICO statute, “[a]ny person injured in his business or
property by reason of a violation of section 1962” can sue for treble damages
and fees. 18 U.S.C. § 1964(c). In short, a claim requires three elements: (1) a
RICO violation under 18 U.S.C. § 1962; (2) an injury to any person’s business
or property; and (3) the injury must be “by reason of” the alleged RICO
violation.
When a government sues under the civil RICO statute, the “business or
property” element requires that the injury “refer to commercial interests or
enterprises.” Hawaii v. Standard Oil Co., 405 U.S. 251, 264 (1972). 3 A
government cannot claim damages for general injury to the economy or “to the
Government’s ability to carry out its functions.” Id. at 265. Recovery is only
authorized for “injuries suffered in its capacity as a consumer of goods and
services.” Id. Thus, the Land Recorders, as government entities and
representatives, must establish that the “business or property” allegedly
injured is not just the general economy or the government’s ability to carry out
governmental functions. It must be a commercial activity. 4
3 Hawaii is a Sherman Act case. However, the phrase “business or property” is
interpreted coextensively in the antitrust and RICO contexts. See Holmes v. SIPC, 505 U.S.
258, 268 (1992).
4 The Land Recorders seek to distinguish Hawaii by classifying its holding as limited
to parens patriae suits and the potential for double recovery. We reject this characterization.
Similarly, in Town of West Hartford v. Operation Rescue, 915 F.2d 92 (2d Cir. 1990), the
Second Circuit rejected an attempt to read Hawaii in this narrow fashion, noting that the
holding specifically refers to a government’s “ability to carry out its functions.” This is
persuasive. Also, in Reiter v. Sonotone Corp., 442 U.S. 330, 341–42, the Court clarified that
a governmental plaintiff can only recover for injury to business or property when it acts “as
a party to a commercial transaction.”
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No. 13-30103
Consolidated with
No. 13-50080
The injuries alleged by the Land Recorders are the loss of recording fees
and general damage to the integrity of the public records. These injuries do not
arise from commercial activity, but rather from the provision of a public
service—that is, from a governmental function. According to the Supreme
Court of Texas, the state’s recording system serves “to protect intending
purchasers and encumbrancers . . . against the evils of secret grants and secret
liens and the subsequent frauds attendant to them.” Ojeda de Toca v. Wise,
748 S.W.2d 449 at 450–51 (Tex. 1988). Similarly, the purpose of the Louisiana
recording statute is to ensure stability of land titles. See Camel v. Waller, 526
So.2d 1086, 1089 (La. 1988). These statutes are grounded on the public policy
of providing notice of title. See Camel, 526 So.2d at 1089; Wise, 748 S.W.2d at
450–51. The recording systems were not created to serve a revenue-generating
function for the states, and, based on the public policy concerns quoted above,
it is not accurate to cast the recording systems as commercial. Rather, they
serve a governmental function. 5
5 The Land Recorders claim the “business of collecting fees to record mortgage
transfers and maintain public records is commercial, because it is the same type of business
in which MERS engages.” While there are similarities between the two systems, namely that
they both track mortgage rights, this argument ignores key distinctions between them. First,
the public offices are open to any person or entity for recording and researching interests,
whereas MERS is a closed-system for its member institutions. Second, the Land Recorders
implement the state recording statutes, which, as described above, are rooted in public policy
concerns. MERS, on the other hand, exists to create efficiencies, reduce costs, and otherwise
facilitate business activity for its member institutions. The Land Recorders are not involved
in commercial activity sufficient for a RICO injury, even though none dispute that MERS is
commercial.
Additionally, Republic of Argentina v. Weltover, 504 U.S. 607 (1992), relied upon by
the Land Recorders to establish that recording is a commercial activity, is inapposite. The
Weltover court construed the term “commercial activity” in the specific context of the Foreign
Sovereign Immunities Act, which contains language establishing that “the commercial
character of an act is to be determined by reference to its nature rather than its purpose.” 28
U.S.C. § 1603(d). This language, at the core of Weltover, does not exist in the civil RICO
context. Accordingly, we evaluate the commercial nature of this alleged RICO injury in light
of both the nature and purpose of the public recording systems.
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Case: 13-30103 Document: 00512550423 Page: 7 Date Filed: 03/05/2014
No. 13-30103
Consolidated with
No. 13-50080
Because the Land Recorders cannot allege an “injury to business or
property” under RICO, they have not stated a legally cognizable claim
sufficient to survive Rule 12(b)(6). 6
The judgment of the district court is AFFIRMED.
6 This holding can also be framed in terms of “statutory standing.” See Sedima
S.P.R.L. v. Inrex Co., 473 U.S. 479, 496 (1985), (“[T]he plaintiff only has standing if . . . he
has been injured in his business or property by the conduct constituting the violation.”).
7