Bates v. Mortgage Electronic Registration System, Inc.

Summarized by Thomas Phinney , Felderstein Fitzgerald Willoughby Pascuzzi & Rios LLP
13 years 5 months ago

Citation:

Bates v. MERS, No. 11-15894 (9th Circuit, September 17, 2012).

Tag(s):

Ruling:

Plaintiff alleged that defendant lenders made false representations under the California False Claims Act ("CFCA") in naming MERS as a beneficiary in recorded mortgage documents in order to avoid paying recording fees. Defendants moved to dismiss the qui tam action under Federal Rules of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction. The Ninth Circuit agreed with the district court that the prior public disclosure provision in the CFCA required dismissal of the action, and that Plaintiff's Motion to Remand the action to state court was properly denied.

Procedural context:

Plaintiff Barrett R. Bates, a realtor, filed suit under the CFCA, Cal. Gov’t Code §§ 12650-12655, against Defendants Mortgage Electronic Registration System, Inc. (“MERS”), and six major lenders (collectively, “Defendants”) on behalf of numerous California counties. Bates alleged that Defendants made false representations in naming MERS as a beneficiary in recorded mortgage documents in order to avoid paying recording fees. Defendants moved to dismiss the qui tam action under Federal Rules of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction and 12(b)(6) for failure to state a claim upon which relief may be granted. Following Defendants’ motions, Bates filed a motion for leave to file a Second Amended Complaint. The district court ruled, and the Ninth Circuit agreed, that the public disclosure provision in the CFCA required dismissal of the action for lack of subject matter jurisdiction and, as a result, there was no need to analyze the 12(b)(6) motion or the motion to amend.

Facts:

On July 17, 2009, Bates, a realtor, filed his first complaint in state court, and on May 10, 2010, filed his First Amended Complaint ("FAC"). The FAC alleged violations of the CFCA on behalf of the real parties in interest, the Counties of the State of California. Bates alleged that in June 2009, he discovered that Defendants were making false statements by naming MERS as a beneficiary in recorded mortgage documents in order to avoid recording assignment documents and pay recording fees. MERS acts as nominee for the noteholder, and when a loan is transferred, the assignment of the mortgage is not recorded, instead the identity of the secured party is tracked by MERS. The CFCA is a “whistleblower” statute that is designed to protect public finances by allowing individuals to file suit under seal on behalf of the State or Counties. However, a jurisdictional pre-requisite to such a lawsuit is that there has been no prior "public disclosure” of the allegations of transactions. The public disclosure provision “erects a jurisdictional bar to qui tam actions that do not assist the government in ferreting out fraud because the fraudulent allegations or transactions are already in the public domain.” The Ninth Circuit agreed with the district court that numerous prior public disclosures sufficed to place the government on notice of the factual allegations in Bates’s FAC, and thus the court lacked jurisdiction to consider the FAC.

Judge(s):

Mary M. Schroeder and Consuelo M. Callahan, Circuit Judges, and Edward R. Korman, District Judge.

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