The United States Court of Appeals for the 5th Circuit has held that government land recording offices cannot state a claim under the federal RICO statutes for loss of revenue due to fewer filing fee revenues or for allegedly inaccurate records. Welborn v. Bank of N.Y. Mellon Corp., No. 13-30103, 2014 WL 843262 (5th Cir. March 5, 2014).
Parish and county land recorders in Louisiana and Texas claimed that allegedly fraudulent statements by Mortgage Electronic Registration Systems, Inc. (“MERS”) and its member banks resulted in fewer filings in the recorders’ offices, decreasing fee revenue, and also resulted inaccurate records in those offices.
While the district courts in both states dismissed the cases on the basis that the recorders were improperly attempting to enforce the Trust Indenture Act of 1939 through the RICO statues, the 5th Circuit dismissed the complains on entirely different grounds. Under RICO, the government can only recover for damages suffered in its capacity as a consumer, not for general damages to the economy or for damage to the government’s ability to function.
The government in these cases was not claiming any damages as a consumer. Instead, the claimed damages were general damages to governmental economy, through reduced filing fee revenue, and alleged damage to governmental functions through inaccurate records. As neither of those claims satisfied the RICO damages requirements, the 5th Circuit affirmed the dismissals.
At the same time, the United States District Court for the Northern District of Texas dismissed a similar case filed by a separate set of Texas counties, alleging that the MERS system violated the Texas recording statute by allowing off-record assignments. The district court in Dallas County v. Merscorp, Inc., No. 11-2733, 2014 WL 840016 (N.D. Tex. March 4, 2014), found that the recording statute contained no remedy provision allowing the suit. Even if it did, the statute required no recording of interim documents, including assignments of deeds of trusts. With no remedy and no interim recording requirement, the court granted summary judgment to MERS.
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