Brown v. Mortgage Elec. Reg. Systems, Inc., 2013 WL 6851088 (8th Cir. Dec. 31, 2013)
The Eighth Circuit affirmed the order of a District Court denying a Plaintiff’s motion to remand holding that, because Arkansas cases involving the misuse of public funds proceed on a class theory that includes all Arkansas taxpayers, and the type of illegal-exaction suit pled by the Plaintiff under Arkansas law did not alter the class membership, the District Court had properly exercised CAFA jurisdiction.
The plaintiff, an Arkansas Circuit Clerk, sued the defendants – various originators of servicers of loans (“Lenders”), alleging that the Lenders used the Mortgage Electronic Registration System (MERS) to avoid paying recording fees on mortgage assignments thereby depriving Arkansas counties of revenue. With MERS, the initial mortgage loans were recorded with the circuit clerk; fees were paid; and MERS was listed as the mortgagee of record. Any subsequent assignments were, however, not recorded, and no recording fees were paid. The plaintiff thus, alleged that this use of the MERS system violated the Arkansas Deceptive Trade Practices Act (“ADTPA”), unjustly enriched the Lenders, and was an illegal exaction under the Arkansas Constitution.
The Lenders removed the action from the Arkansas state court to the District Court under CAFA. The plaintiff moved to remand the case to the state court, which the District Court denied. The District Court noted that the CAFA requirements were satisfied because inter alia the plaintiff had alleged that the Lenders executed millions of documents without paying recording fee of approximately $15.00 well exceeded the $5 million jurisdictional threshold. Similarly, the District Court denied plaintiff’s second motion to remand, and also denied her motion to alter or amend. The plaintiff appealed to the Eighth Circuit.
On appeal, the plaintiff raised three jurisdictional arguments: (1) the District Court did not have jurisdiction under CAFA because it misconstrued the type of illegal-exaction that he pleaded; (2) even if it did have CAFA jurisdiction, it erred in exercising supplemental jurisdiction over the unjust enrichment and ADTPA claims; and (3) the District Court erred in not abstaining from hearing claims.
At the outset, the Eighth Circuit opined that the District Court properly exercised subject matter jurisdiction under CAFA over the illegal-exaction claim. Regarding whether the CAFA requirement that the class contain at least 100 members was satisfied, the Eight Circuit noted that although the plaintiff attempted to avoid federal jurisdiction by asserting that her class did not include all Arkansas taxpayers, the face of the plaintiff’s complaint at the time the action was removed proposed to bring the action on behalf of all taxpayers in the State of Arkansas. Thus, the Eighth Circuit stated the proposed plaintiff class was greater than 100 members.
The Eighth Circuit also observed that there are two types of illegal exaction cases under Arkansas law, and the plaintiff asserted that she pled a public-funds case, which was not brought on behalf of all taxpayers. The Eighth Circuit, however, noted that Arkansas cases involving the misuse of public funds proceed on a class theory that includes all Arkansas taxpayers, and thus, the type of illegal-exaction suit pled under Arkansas law did not alter the class membership. Accordingly, the Eighth Circuit opined that the District Court properly found that the plaintiff alleged a class action under CAFA and that the class for the illegal-exaction claim included all Arkansas taxpayers, and thus, that it properly exercised jurisdiction under CAFA.
Next, the Eighth Circuit held that District Court did not err in refusing to dismiss or remand the state-law claims after dismissing the illegal-exaction class action claim. The Eighth Circuit noted that a district court is required to exercise supplemental jurisdiction over claims that are so related to the claims in the action within such original jurisdiction that they form part of the same case or controversy unless one of the enumerated circumstances giving the district court discretion to decline jurisdiction is present. Further, a court had the discretion to decline jurisdiction when the district court has dismissed all claims over which it has original jurisdiction.
Here, the District Court dismissed the federal claims and the state-law claims in the same Order, and the Eighth Circuit noted that it would have been a waste of judicial resources to remand the case, since the federal court had already expended time and resources with the issues. Also, because it was both fair to the parties and a proper application of comity for the District Court to decide the issue, the Eighth Circuit opined that the District Court properly exercised supplemental jurisdiction over the Plaintiff’s state-law ADTPA and unjust enrichment claims.
Next, the Eighth Circuit observed that the abstention doctrine applies when a state has established a complex regulatory scheme supervised by state courts and serving important state interests, and when resolution of the case demands specialized knowledge and the application of complicated state laws. This action, however, was a standard enforcement proceeding requiring the federal court to apply Arkansas state law in a way that had already been interpreted by Arkansas courts.
Finally, the Eighth Circuit stated that because Arkansas law does not impose a duty on assignees of real estate mortgages to record those assignments, the plaintiff’s state law unjust enrichment and ADTPA claims did not state a claim.
Accordingly, the Eighth Circuit opined that the District Court properly exercised jurisdiction over all claims in the lawsuit, and properly dismissed those claims for failure to state a claim on which relief could be granted.