MERSCorp Holdings, Inc. et al. v. Dannel P. Malloy, Governor et al. (2013)

MEMORANDUM OF DECISION

FACTS

The plaintiffs, Mortgage Electronic Registration Systems, Inc. (MERS) and MERSCorp Holdings, Inc., commenced this action on July 2, 2013 by service of process on the defendants, Dannel P. Malloy, Governor of the State of Connecticut, George C. Jepsen, Attorney General of the State of Connecticut, Denise L. Nappier, Treasurer of the State of Connecticut, Kendall F. Wiggin, State Librarian of the State of Connecticut, and LeAnn R. Power, Public Records Administrator of the State of Connecticut.   The essence of the plaintiffs' claims is that the amendments to General Statutes §§ 7–34a and 49–10, which go into effect on July 15, 2013, violate the plaintiffs' federal and state constitutional rights and, therefore, such amendments should not be enforced.

In the verified complaint, the plaintiffs allege the following relevant facts.   MERS, a subsidiary of MERSCorp Holdings, Inc., was formed to eliminate title problems and inefficiencies that arise as a result of multiple sales of mortgage instruments in the secondary mortgage market.   Pursuant to mortgage agreements entered into between lenders and borrowers, MERS's function is to serve as mortgagee and as holder of legal title to the interests granted by the security instrument in a representative capacity.   When a mortgage is recorded in public land records, MERS is identified as the mortgagee on behalf of the lender and its successors and/or assignees.   As the mortgagee of record, MERS acts as the agent or nominee of the lender and subsequent successors and/or assignees.¹  MERS System is a system that tracks changes in mortgage servicing rights and beneficial ownership interests in loans secured by residential real estate for MERS System members.   When a mortgage is transferred among MERS System members, there is no separate assignment of the mortgage because there is no change in mortgagee inasmuch as MERS remains the mortgagee of record.   In such a situation, therefore, there is no corresponding filing fee.  General Statutes § 7–34a provides for a schedule of fees due to the town clerk upon the recording of warranty deeds, quitclaim deeds, mortgage deeds, assignments of mortgages, and releases of mortgages.   Numbers 13–184 and 13–247 of the 2013 Public Acts, which take effect on July 15, 2013, amend §§ 7–34a and 49–10,² and their effect in part is to impose additional fees on a “nominee of a mortgagee,” a category into which only MERS falls.

Based on the foregoing allegations, the plaintiffs claim that the amendments to both §§ 7–34a and 49–10 were targeted unjustifiably at their business.   The plaintiffs accordingly allege a violation of equal protection, deprivation of substantive due process, and an unjustifiable taking without just compensation in violation of the United States and Connecticut constitutions.   The plaintiffs also allege that enforcement of the statutes as amended will result in a burden on interstate commerce and an unlawful bill of attainder in violation of the United States constitution.   Finally, the plaintiff alleges a violation of 42 U.S.C. § 1983 based on the aforementioned constitutional violations.

Along with the complaint, the plaintiffs filed a motion for temporary injunction, which is presently before this court.   Therein, the plaintiffs seek to preserve the status quo and enjoin the defendants from enforcing Public Acts 13–184 and 13–247, which the plaintiffs argue would otherwise result in a myriad of violations of the plaintiffs' constitutional rights.   On July 11, 2013, the plaintiffs filed a memorandum in support of their motion for temporary injunction and the defendants filed a memorandum in opposition thereto.   The parties presented argument regarding the motion for temporary injunction on July 11, 2013.

DISCUSSION

IStandard of Review

“The [principal] purpose of a temporary injunction is to preserve the status quo until the rights of the parties can be finally determined after a hearing on the merits.”  (Internal quotation marks omitted.)  Clinton v. Middlesex Mutual Assurance Co., 37 Conn.App. 269, 270, 655 A.2d 814 (1995).   The standard for the granting of a temporary injunction in Connecticut is well settled.   There is a four-part test for the issuance of a temporary injunction:  “(1) the plaintiff ha[s] no adequate legal remedy;  (2) the plaintiff would suffer irreparable injury absent [the injunction];  (3) the plaintiff [is] likely to prevail ․;  and (4) the balance of the equities favor[s the issuance of the injunction].”  Waterbury Teachers Ass'n. v. Freedom of Information Commission, 230 Conn. 441, 446, 645 A.2d 978 (1994).  “In general, a court may, in its discretion, exercise its equitable power to order a temporary injunction pending final determination of the order, upon a proper showing by the movant that if the injunction is not granted he or she will suffer irreparable harm for which there is no adequate remedy at law ․ In exercising its discretion, the court, in a proper case, may consider and balance the injury complained of with that which will result from interference by injunction.”  (Citations omitted;  internal quotation marks omitted.)  Moore v. Ganim, 233 Conn. 557, 569 n.25, 660 A.2d 742 (1995).

“[A] party seeking injunctive relief has the burden of alleging and proving irreparable harm and lack of an adequate remedy at law.”  (Internal quotation marks omitted.)  Branch v. Occhionero, 239 Conn. 199, 207, 681 A.2d 306 (1996).

“The issuance of an injunction is the exercise of an extraordinary power which rests within the sound discretion of the court ․” Scoville v. Ronalter, 162 Conn. 67, 74, 291 A.2d 222 (1971).  “It is clear that the power of equity to grant injunctive relief may be exercised only under demanding circumstance ․ Restraining the action of an individual or a corporation by injunction is an extraordinary power, always to be exercised with caution, and never without the most satisfactory reasons.”  (Citation omitted;  emphasis added;  internal quotation marks omitted.)  Anderson v. Latimer Point Management Corp., 208 Conn. 256, 262, 545 A.2d 525 (1988).  “Courts will act with extreme caution where the granting of injunctive relief will result in embarrassment to the operations of government.”  (Internal quotation marks omitted.)  Wood v. Wilton, 156 Conn. 304, 310, 240 A.2d 904 (1968).

II

Standing

A threshold issue in determining whether the plaintiffs meet the standard for granting a temporary injunction is the question of whether the plaintiffs have standing to petition for declaratory relief.   The defendants argue that the plaintiffs have failed to establish a direct injury and therefore lack standing to challenge the constitutionality of the amended statutes.

“Standing is the legal right to set judicial machinery in motion.   One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy ․ Standing is not a technical rule intended to keep aggrieved parties out of court;  nor is it a test of substantive rights.   Rather it is a practical concept designed to ensure that courts and parties are not vexed by suits brought to vindicate nonjusticiable interests and that judicial decisions which may affect the rights of others are forged in hot controversy, with each view fairly and vigorously represented.”  (Internal quotation marks omitted.)  West Farms Mall, LLC v. West Hartford, 279 Conn. 1, 11, 901 A.2d 649 (2006).

“Persons wishing to contest, on constitutional grounds, the validity of legislation must be able to show, not only that the legislation is invalid, but also that they have sustained, or are in immediate danger of sustaining, some direct injury as the result of its enforcement ․ [T]he power of courts to pass upon the constitutionality of statutes arises only when the interests of litigants require the use of this judicial authority for their protection against actual interference;  a hypothetical threat is not enough.”  (Internal quotation marks omitted.)  Kuser v. Orkis, 169 Conn. 66, 74, 362 A.2d 943 (1975);  see also Tucker v. Neighborhood Legal Services, Inc., 4 Conn.App. 209, 213, 493 A.2d 278, cert. denied, 197 Conn. 802, 495 A.2d 281 (1985).

General Statutes § 7–34a(a)(2)(C), as amended by Public Acts 13–184 and 13–247, defines a “nominee of a mortgage” as “any person who (I) serves as mortgagee in the land records for a mortgage loan registered on a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members, and (ii) is a nominee or agent for the owner of the promissory note or the subsequent buyer, transferee or beneficial owner of such note.”   Subsections (a)(2)(A) and (a)(2)(B) of § 7–34a, which are also newly added, provide inter alia that “town clerks shall receive from a nominee of a mortgagee” certain increased recording fees.   See Public Acts 2013, Nos. 13–184 and 13–247, § 98.   At the July 11, 2013 hearing, the defendants conceded that MERS would fall into the category of a “nominee of a mortgage” within the meaning of § 7–34a(a)(2)(C).  Moreover, the plaintiffs presented sufficient evidence to demonstrate that MERS will be legally responsible for paying these fees and that payment of such fees would be imminent upon the implementation of the amendments to the statutes.   That MERS may not always be the specific entity paying such recording fees does not render their legal calling to do so inconsequential.  McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, Department of Business Regulation, 496 U.S. 18, 47–50, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990);  Neighborhood Builders, Inc. v. Madison, 294 Conn. 651, 664–69, 986 A.2d 278 (2010).   For these reasons, the plaintiffs have standing.

II

Adequate Remedy at Law

As to the first factor associated with granting a temporary injunction, an “[a]dequate remedy at law means a remedy vested in the complainant, to which he may, at all times, resort, at his own option, fully and freely, without let or hindrance ․ If the plaintiffs have an adequate remedy at law then they are not entitled to the injunction.”  (Citations omitted;  internal quotation marks omitted.)  Stocker v. Waterbury, 154 Conn. 446, 449, 226 A.2d 514 (1967).   In the present case, the gravamen of the plaintiffs' contention is that §§ 7–34a and 49–10, as amended, will authorize the collection of increased recording fees from the plaintiffs.   Inasmuch as the amendments to §§ 7–34a and 49–10 are not yet in effect, the plaintiffs do not seek monetary relief at the present stage of this case;  rather, the plaintiffs seek declaratory relief.   Assuming, arguendo, the plaintiffs' motion for temporary injunction is denied and §§ 7–34a and 49–10, as amended, are enforced, the plaintiffs may continue to litigate the question of whether the amendments to §§ 7–34a and 49–10 are unconstitutional, and, should the plaintiffs prevail on the merits of their claims, an award of money damages indeed would provide adequate compensation for the monetary injury that the plaintiffs may suffer by virtue of future enforcement of §§ 7–34a and 49–10.   See, e.g., A. Gallo & Co. v. McCarthy, Superior Court, judicial district of Hartford, Docket No. CV 09 4043592 (May 5, 2009, Aurigemma, J.);   Rosinka Joint Venture v. Williams, Superior Court, judicial district of Stamford–Norwalk at Stamford, Docket No. CV 93 0132624 (March 14, 1994, Lewis, J.);   Life Plans Unlimited, Inc. v. Connecticut Retail Merchants Ass'n., Superior Court, judicial district of Fairfield at Bridgeport, Docket No. CV 91 0285427 (September 30, 1991, Thim, J.) (5 Conn. L. Rptr. 64);  Loveridge v. Pendleton Woolen Mills, Inc., 788 F.2d 914 (2d Cir.1986).

“[A]s a general matter, a plaintiff seeking to enjoin a governmental agency must demonstrate that it has no access to the ordinary remedy of monetary relief.  Pequonnock Yacht Club, Inc. v. Bridgeport, 259 Conn. 592, 598, 790 A.2d 1178 (2002).   The fact that monetary claims against the state must be authorized by the claims commissioner does not make such a claim unenforceable.   Standing alone, that fact did not entitle the plaintiff to equitable relief either in the form of an injunction ․” (Emphasis added.)   Alter & Associates, LLC v. Lantz, 90 Conn.App. 15, 22, 876 A.2d 1204 (2005).   Thus, the fact that the plaintiffs may need to seek the permission of the claims commissioner in order to sue the sovereign to recover portions of the recording fees collected does not render the plaintiffs' remedy inadequate.   Moreover, §§ 7–34a and 49–10, as amended, provide for the manner in which the recording fees are allocated after collection;  therefore, the plaintiffs will have the ability to pursue the particular parties that ultimately have received the plaintiffs' recording fees, should the plaintiffs prevail on the merits.   In light of the foregoing, the plaintiffs have not demonstrated that there is no adequate remedy at law.

III

Irreparable Harm

Regarding the second factor, “[a] finding that a substantial probability of irreparable harm exists requires a two part analysis:  (1) whether there is a substantial probability that the alleged harm will result;  and (2) whether the harm, if it occurs, will be irreparable.”  International Ass'n. of Firefighters, Local 786 v. Serrani, 26 Conn.App. 610, 616, 602 A.2d 1067 (1992).   The plaintiffs argue that they face potential reputational and financial harm inasmuch as enforcement of the statutes as amended would cause “a significant threat to [the plaintiffs'] reputation and ongoing ability to maintain its membership base” and that if the statutes as amended are allowed to be enforced, other states might enact similar legislation, “creating a substantial threat to [the plaintiffs'] ongoing viability.”

As for the plaintiffs' claim of reputational harm, the plaintiffs have failed to present concrete evidence that would demonstrate by a substantial probability that any current member of the MERS System would terminate its membership if §§ 7–34a and 49–10, as amended, were enforced.   Regarding the plaintiffs' claim of financial harm, this court acknowledges that the plaintiffs have presented evidence of a potential financial injury inasmuch as the statutes as amended will result in the plaintiffs' paying higher recording fees;  however, the plaintiffs have wholly failed to demonstrate that this potential financial harm is irreparable.  “Harm is irreparable when it cannot be adequately compensated in damages or cannot be measured by any pecuniary standard ․” Taylor v. Hoffman Ford, Inc., Superior Court, judicial district of Tolland at Rockville, Docket No. CV 04 4000390 (September 22, 2005, Scholl, J.) (40 Conn. L. Rptr. 49, 50).  “Irreparable injury is one that cannot be redressed through a monetary award.   Where money damages are adequate compensation a preliminary injunction should not issue ․ Unless the lost profits are of such magnitude as to threaten the viability of the plaintiff's business, an adequate remedy at law exists ․ If a damage award will come too late to save the plaintiff's business ․ the loss to the plaintiff will be irreparable.”  (Citations omitted;  internal quotation marks omitted.)   Bausch & Stroebel Machine Co., Inc. v. Bausch, Superior Court, judicial district of Middlesex at Middletown, Docket No. CV 09 4010033 (July 9, 2010, Burgdorff J.) (50 Conn. L. Rptr. 283, 284);  see also Bristol Technology, Inc. v. Microsoft Corp., 42 F.Sup.2d 153, 161 n.19 (D.Conn.1998) (noting that a loss of merely some business would not meet the irreparable harm standard;  rather, “[a] loss of substantially all its business is required”).   Inasmuch as the plaintiffs' potential financial harm is measurable by a pecuniary standard and the plaintiffs have not demonstrated with a substantial probability that they will suffer irreparably or irreversibly, the plaintiffs have failed to meet their burden of demonstrating irreparable harm.

The plaintiffs' contention that allegations of constitutional violations mandate a finding of irreparable injury is unfounded.  “[T]he cases in which courts have found irreparable injury by virtue of a constitutional deprivation alone have done so, with certain exceptions, where the protected right has been personal and the violation non-compensable.”  (Emphasis in original.)   Smith v. Fredrico, United States District Court, Docket No. 12 CV 04408(ADS)(ETB) (E.D.N.Y. January 8, 2013);  see also Savage v. Gorski, 850 F.2d 64 (2nd Cir.1988);  Cunningham v. Adams, 808 F.2d 815, 822 (11th Cir.1987);  South Lyme Property Owners Ass'n., Inc. v. Old Lyme, 121 F.Sup.2d 195 (D.Conn.2000);  A. Gallo & Co. v. McCarthy, supra, Superior Court, Docket No. CV 09 4043592.   In the present case, the plaintiffs claim that they will suffer a monetary burden by virtue of enforcement of the amended statutes.   While a plea for monetary relief at this stage of the case would be premature, the plaintiffs certainly may be made whole with an award of money damages in a subsequent proceeding, if the statutes are enforced and thereafter deemed by the court to be unconstitutional.

IV

Likelihood of Success on the Merits

In support of their petition for a temporary injunction, the plaintiffs argue that §§ 7–34a and 49–10, as amended by Public Acts 13–184 and 13–247, present an immediate threat of irreparable harm to the plaintiffs inasmuch as enforcement of these amendments would violate the plaintiffs' constitutional rights to equal protection and due process under the state and federal constitutions, would impermissibly burden interstate commerce in violation of the federal constitution and also would constitute an unlawful bill of attainder in violation of the federal constitution.

In order for the plaintiffs to succeed on the merits of their claims, as a threshold matter, the plaintiffs are held to an arduous standard of proof.   They must demonstrate that §§ 7–34a and 49–10, as amended, are unconstitutional beyond a reasonable doubt.  Kinney v. State, 285 Conn. 700, 710, 941 A.2d 907 (2008);  Pereira v. State Board of Education, 304 Conn. 1, 121, 37 A.3d 625 (2012).   In considering the merits of the plaintiffs' claims, this court must “indulge in every presumption in favor of the statute[s'] constitutionality ․” (Internal quotation marks omitted.)  State v. McKenzie–Adams, 281 Conn. 486, 500, 915 A.2d 822, cert. denied, 552 U.S. 888, 128 S.Ct. 248, 169 L.Ed.2d 148 (2007).   In addition to the requirement that the court apply these stringent standards, this court's power to grant injunctive relief may only be exercised in demanding circumstances.   Anderson v. Latimer Point Management Corp., supra, 208 Conn. 262.   Based on these considerations, this court is not prepared at this time to find that the plaintiffs have a likelihood of success on the merits of their claims.   Moreover, because the court has found that the plaintiffs have failed to demonstrate that they lack an adequate remedy at law and have failed to show that they will suffer irreparable injury, it is unnecessary for this court to address specifically the merits of each of the plaintiffs' claims.   See, e.g., A. Gallo & Co. v. McCarthy, supra, Superior Court, Docket No. CV 09 4043592.

V

Balancing of the Equities

As to the fourth requirement, this court has considered the interests at stake and concludes that a balancing of the equities is not sufficiently compelling to overshadow the plaintiffs' failure to demonstrate that they lack an adequate remedy at law and that they will suffer irreparable injury.

CONCLUSION

Based on the foregoing, the plaintiffs' motion for temporary injunction is denied.

ANTONIO C. ROBAINA, J.

FOOTNOTES

FN1. MERS does not originate, lend, service or invest in home loans;  rather, it merely acts as an agent or nominee of the lender..  FN1. MERS does not originate, lend, service or invest in home loans;  rather, it merely acts as an agent or nominee of the lender.

FN2. In its present form, § 7–34a provides for a recording fee schedule, which is applicable to a filing party regardless of that party's status.   Public Acts 13–184 and 13–247 amend § 7–34a, inter alia, by adding § 7–34a(a)(2)(A) and (a)(2)(B), which provide that town clerks shall receive increased recording fees from a “nominee of mortgagee.”   The term “nominee of mortgagee” is defined in the newly added § 7–34a(a)(2)(C) as “any person who (i) serves as mortgagee in the land records for a mortgage loan registered on a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members, and (ii) is a nominee or agent for the owner of the promissory note or the subsequent buyer, transferee or beneficial owner of such note.”   See Public Acts 2013, Nos. 13–184 and 13–247, § 98.   Public Acts 13–184 and 13–247 also amend § 49–10(h).  This amended section explains how fees collected from a nominee of mortgage in accordance with § 7–34a are allocated.   See Public Acts 2013, Nos. 13–184 and 13–247, § 97..  FN2. In its present form, § 7–34a provides for a recording fee schedule, which is applicable to a filing party regardless of that party's status.   Public Acts 13–184 and 13–247 amend § 7–34a, inter alia, by adding § 7–34a(a)(2)(A) and (a)(2)(B), which provide that town clerks shall receive increased recording fees from a “nominee of mortgagee.”   The term “nominee of mortgagee” is defined in the newly added § 7–34a(a)(2)(C) as “any person who (i) serves as mortgagee in the land records for a mortgage loan registered on a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members, and (ii) is a nominee or agent for the owner of the promissory note or the subsequent buyer, transferee or beneficial owner of such note.”   See Public Acts 2013, Nos. 13–184 and 13–247, § 98.   Public Acts 13–184 and 13–247 also amend § 49–10(h).  This amended section explains how fees collected from a nominee of mortgage in accordance with § 7–34a are allocated.   See Public Acts 2013, Nos. 13–184 and 13–247, § 97.

Robaina, Antonio C., J.