Merscorp Holdings, Inc. et al. v. Dannel P. Malloy, Governor, State of Connecticut et al. (2014)

MEMORANDUM OF DECISION RE DEFENDANTS' MOTION TO STRIKE

I. NATURE OF THE PROCEEDINGS

The plaintiffs, Mortgage Electronic Registration Systems, Inc. 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 plaintiffs seek, inter alia, a judgment declaring that General Statutes §§ 7–34a and 49–10, as amended by §§ 97 and 98 of Public Act 13–184 and §§ 81 and 82 of Public Act 13–247, are unconstitutional under both the federal and state constitutions, and therefore wholly void and ineffective for any purpose.

In their Revised Complaint dated October 15, 2013, the plaintiffs allege the following relevant facts which, for purposes of this motion to strike, are taken as true.   MERSCORP Holdings, Inc. (“MERS Holdings”) is a private corporation with a principal place of business in Reston, Virginia.   Mortgage Electronic Systems, Inc. (“MERS”) is a wholly owned subsidiary of MERS Holdings.   MERS Holdings owns and operates the MERS® System, which is a national electronic database made available to mortgage lenders, servicers, sub-servicers, and government institutions.  (Revised Complaint, Count One, ¶¶ 8–9.)

When a residential mortgage loan is originated, a borrower typically executes a promissory note and a mortgage granting a security interest in the real estate as collateral in the event of a default on the note.   The mortgage is recorded in the local land records where the property is located.   Lenders routinely sell their interests in mortgage loans on the secondary market.   Such loans may be sold several times, in whole or in part, or bundled into mortgage-backed securities which are also sold and re-sold.   Historically, the transfer of a loan obligation to a new owner required a separate assignment of the mortgage which was then recorded on local land records.  (Revised Complaint, Count One, ¶¶ 10–13.)

As the mortgage-backed securities market grew, and the volume of mortgage transfers increased, the recording process for assignments became cumbersome to the industry, and multiple mortgage assignments caused confusion, delay in transfers, and chain of title problems.   MERS was formed to eliminate these problems which were negatively affecting the financial industry's ability to provide home loans.  (Revised Complaint, Count One, ¶¶ 13–14.)

MERS acts as a mortgagee and the holder of the legal security interest for loans registered on the MERS® system.   At the origination of a loan, the borrower, lender, and MERS agree in writing that MERS will serve in a representative capacity as the agent (i.e.“nominee”) of the lender and the lender's successors and assigns.   The mortgage is recorded on the local land records identifying MERS as the mortgagee acting on behalf of the lender (and the lender's successors and assigns) as its nominee/agent.  (Revised Complaint, Count One, ¶¶ 15–16.)   When a mortgage for which MERS is the nominee/agent is transferred among MERS system members, there is no separate assignment of the mortgage because there is no change in the mortgagee;  MERS remains the mortgagee of record.  (Revised Complaint, Count One, ¶ 20.)

Prior to July 15, 2013, Conn. Gen.Stat. § 7–34a required all filers to pay the town clerk $10 for the first page of each document filed, plus $5 for each subsequent page.  (Revised Complaint, Count One, ¶ 29.)   Additional fees of $3 and $40 per filing were imposed by §§ 7–34a(d) and 7–34a(e) respectively, and an additional fee of $2 per assignment was imposed after the first two assignments.  (Revised Complaint, Count One, ¶¶ 30, 31, 33.)

On July 15, 2013, Sections 97 and 98 of Public Act No. 13–184 and Sections 81 and 82 of Public Act No. 13–247 became effective and amended General Statutes § 7–34a to define the term “nominee of a mortgagee” and specify filing fees to be paid by any such “nominee of a mortgagee.”  Conn. Gen.Stat. § 7–34a(a)(2)(C), as amended by Public Act 13–184, § 98, and Public Act 13–247, § 82, defines a “nominee of a mortgagee” as:

[A]ny 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.

MERS falls within the definition of a “nominee of a mortgagee.”  (Revised Complaint, Count One, ¶ 3, ¶ 48.) ¹  Conn. Gen.Stat. § 7–34a(a)(2)(A), as amended, further provides that when a nominee of a mortgagee files a document in the land records, with two exceptions, the clerk shall collect a fee of $116 for the first page filed and $5 for each additional page.  (Revised Complaint, Count One, ¶ 40.)   In addition, the clerk collects $3 pursuant to § 7–34a(d) and $40 pursuant to § 7–34a(e).  (Revised Complaint, Count One, ¶ 41.)

The two exceptions are set out in Conn. Gen.Stat. § 7–34a(a)(2)(B) and provide that when a nominee of a mortgagee files “(i) an assignment of mortgage in which a nominee of a mortgagee appears as assignor, or (ii) a release of mortgage by the nominee of mortgagee,” the town clerks collect a fee of $159, plus $10 for the first page and $5 for each additional page.  (Revised Complaint, Count One, ¶ 38.)

The recording fees for all other filers remain unchanged pursuant to § 7–34a(a)(1).  (Revised Complaint, Count One, ¶ 43.)

The net effect of the amendments to General Statutes § 7–34a(a) will be to collect only from a “nominee of a mortgagee” (i.e., MERS) substantially more for the filing of deeds, assignments, and other documents in the land records than from any other filer.  (Revised Complaint, Count One, ¶ 44.)   In simple terms, when filing a mortgage deed, if MERS is a party to the transaction, the recording fee will be $159 for the first page and $5 for each additional page;  if MERS is not a party to the transaction, the recording fee will be $53 for the first page and $5 for each additional page.   When filing a mortgage assignment or mortgage release, if MERS is a party to the transaction, the recording fee for the document (regardless of number of pages) will be $159;  if MERS is not a party to the transaction, the recording fee will be $53 for the first page and $5 for each additional page.  (Revised Complaint, Count One, ¶ 50;  Exhibit D.) The plaintiffs characterize the fees charged for “MERS-related” filings as a “discriminatory surcharge” to be paid by borrowers and lenders transacting business with MERS. (Revised Complaint, Count One, ¶ 53(b).)

The legislature adopted the amendments to General Statutes § 7–34a(a) as revenue enhancing measures.  (Revised Complaint, Count One, ¶ 6.)   The effect of the newly enacted General Statutes § 49–10(h) will be to channel a majority of the monies collected under § 7–34a(a) from “a nominee of a mortgagee” directly to the State for its use.  (Revised Complaint, Count One, ¶ 47.)   The Office of Fiscal Analysis projects that the new nominee filing fees will produce $5.4 million in annual revenue to the State in fiscal years 2014 and 2015.  (Revised Complaint, Count One, ¶ 62.)

The plaintiffs' complaint is in twelve counts and alleges denial of equal protection of the law, 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, in Counts Nine through Twelve, the plaintiffs allege four separate claims under 42 U.S.C. § 1983 which are derivative of the claims under the federal constitution set forth in Counts One, Two, Four and Five of the Revised Complaint.

The defendants have moved to strike all counts of the plaintiffs' revised complaint as legally insufficient.

II. ANALYSIS

A. STANDARD OF REVIEW

“The purpose of a motion to strike is to contest ․ the legal sufficiency of the allegations of any complaint ․ to state a claim upon which relief can be granted.”  (Citations omitted;  internal quotation marks omitted.)  Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498, 815 A.2d 1188 (2003).   “It is fundamental that in determining the sufficiency of a complaint challenged by a defendant's motion to strike, all well-pleaded facts and those facts necessarily implied from the allegations are taken as admitted.”   (Internal quotation marks omitted).  Coppola Construction Co., Inc. v. Hoffman Enterprises Ltd. Partnership, 309 Conn. 342, 350, 71 A.3d 480 (2013).

Our Supreme Court has recently commented on the interpretation of pleadings:

we long have eschewed the notion that pleadings should be read in a hypertechnical manner.   Rather, [t]he modern trend, which is followed in Connecticut, is to construe pleadings broadly and realistically, rather than narrowly and technically ․ [T]he complaint must be read in its entirety in such a way as to give effect to the pleading with reference to the general theory upon which it proceeded, and do substantial justice between the parties ․ Our reading of pleadings in a manner that advances substantial justice means that a pleading must be construed reasonably, to contain all that it fairly means, but carries with it the related proposition that it must not be contorted in such a way so as to strain the bounds of rational comprehension ․ Although essential allegations may not be supplied by conjecture or remote implication ․ the complaint must be read in its entirety in such a way as to give effect to the pleading with reference to the general theory upon which it proceeded, and do substantial justice between the parties ․ As long as the pleadings provide sufficient notice of the facts claimed and the issues to be tried and do not surprise or prejudice the opposing party, we will not conclude that the complaint is insufficient to allow recovery.  (Citations omitted;  internal quotation marks omitted.)

Grenier v. Commissioner of Transportation, 306 Conn. 523, 536–37, 51 A.3d 367 (2012).

Therefore, the court must view the factual allegations of the complaint in a broad fashion, not narrowly limited to that which is expressly stated, but also including facts necessarily implied by and reasonably inferred from them.

In this case, the defendants attack as legally insufficient various claims for declaratory relief based on ongoing violations of the state and federal constitutions.  “Whether the court ․ could properly grant declaratory relief ․ is a distinct question, which is properly raised by a motion to strike.”  (Internal quotation marks omitted.)  Leoni v. Water Pollution Control Authority, 21 Conn.App. 77, 82, 571 A.2d 153 (1990).   In order for the plaintiffs to maintain a declaratory judgment action, they must establish that:  (1) “[they have] an interest, legal or equitable, by reason of danger or loss or of uncertainty as to [their] rights or other jural relations”;  and (2) “[t]here is an actual bona fide and substantial question or issue in dispute or substantial uncertainty of legal relations which requires settlement between the parties.”   See Practice Book § 17–55(1)–(2).   If these two requirements are not met, there is no justiciable controversy.   See ACMAT Corp. v. Greater New York Mutual Ins. Co, 88 Conn.App. 471, 478 n.2, 869 A.2d 1254, cert. denied, 274 Conn. 903, 876 A.2d 11 (2005).

“An action for declaratory judgment is a special proceeding under General Statutes § 52–29, implemented by Practice Book §§ 17–54 and 17–55 ․ Our Supreme Court has frequently pointed out that the statutes and rules pertaining to declaratory judgments create an independent remedy and should be accorded a liberal construction ․” (Citations omitted;  internal quotation marks omitted.)  ACMAT Corp. v. Greater New York Mutual Ins. Co., supra, 475–76.   “To state a cause of action for such relief, facts showing the existence of a substantial controversy or uncertainty of legal relations which requires settlement between the parties must be alleged.”  (Internal quotation marks omitted).  Bombero v. Planning & Zoning Commission, 40 Conn.App. 75, 85, 669 A.2d 598 (1996).

In deciding whether the various counts of the plaintiffs' complaint present a legally sufficient claim for declaratory relief, the court makes no determination regarding the merits of the underlying constitutional claim.   Rather, the court considers only whether facts have been alleged showing the existence of a substantial controversy regarding infringement or deprivation of clearly established constitutional rights.

B. COUNT ONE AND COUNT SIX (Equal Protection)

The defendants argue that MERS' equal protection claims must be stricken because the plaintiff's failed to identify and allege specific instances in which persons situated similarly in all relevant respects were treated differently.

“The [e]qual [p]rotection [c]lause of the [f]ourteenth [a]mendment to the United States [c]onstitution is essentially a direction that all persons similarly situated should be treated alike ․ A violation of equal protection by selective [treatment] arises if:  (1) the person, compared with others similarly situated, was selectively treated;  and (2) ․ such selective treatment was based on impermissible considerations such as race, religion, intent to inhibit or punish the exercise of constitutional rights, or malicious or bad faith intent to injure a person.”  (Citations omitted;  internal quotation marks omitted).  Columbia Air Services, Inc. v. Dept. of Transportation, 293 Conn. 342, 362, 977 A.2d 636 (2009).

“[T]he requirement imposed [on][p]laintiff's claiming an equal protection violation [is that they] identify and relate specific instances [in which] persons situated similarly in all relevant aspects were treated differently ․” (Internal quotation marks omitted;  emphasis in original.)   Cadlerock Properties Joint Venture, L.P. v. Commissioner of Environmental Protection, 253 Conn. 661, 672, 757 A.2d 1 (2000), cert. denied, 531 U.S. 1148, 121 S.Ct. 1089, 148 L.Ed.2d 963 (2001).  “Under either the prototypical equal protection or class of one analysis, the plaintiff's ․ complaint must identify and relate specific factual instances in which persons similarly situated were treated differently.”  Mercer v. Champion, 139 Conn.App. 216, 238, 55 A.3d 772 (2012).

The Revised Complaint sufficiently alleges that MERS is being treated differently than other entities similarly situated to it.   Our Supreme Court has held that the “similarly situated” standard is satisfied where a plaintiff alleges that it is the specific target of particular legislation.   In City Recycling, Inc. v. State, the Supreme Court explained:

the “similarly situated” requirement in an action involving an alleged equal protection violation based on selective treatment is troublesome.  [Thomas v. West Haven, 249 Conn. 385, 400 (1999) ].   The present case is even more unusual because the plaintiff claims, among other things, that particular legislation was, not selectively applied to the plaintiff, but solely enacted because of, and so narrowly drafted to apply solely to, the plaintiff.   In the present case, where the plaintiff has proven that certain legislation was enacted because of and specifically aimed at the plaintiff, we deem the similarly situated requirement to be satisfied.

City Recycling, Inc. v. State, 257 Conn. 429, 448–49, 778 A.2d 77 (2001).

In its Revised Complaint, MERS has explicitly alleged that the statutory definition of a “nominee of a mortgagee” set forth in General Statutes § 7–34a(a)(2)(C) was specifically written to apply to MERS, and only to MERS:

2.  These increased recording fees set forth in General Statutes § 7–34a and allocated pursuant to § 49–10(h), are to be collected only from filings made by or on behalf of a “nominee of a mortgagee,” which has been singled out for special, adverse treatment.

3. The plaintiff Mortgage Electronic Registration Systems, Inc. (hereafter “MERS”) falls within the statutory definition of a “nominee of a mortgagee” contained in the new General Statutes § 7–34a(a)(2)(C) and, upon information and belief, is the only entity that falls within the definition.

4. The revisions to §§ 7–34a and 49–10(h) were enacted with the specific intent to require MERS to pay higher recording fees than any other filer on the public land records.

(Revised Complaint, Count One, ¶¶ 2–4.)

Accordingly, the court finds that MERS has satisfied the “similarly situated” requirement by alleging facts demonstrating that the Public Acts were “solely enacted because of, and so narrowly drafted to apply solely to” MERS. See City Recycling Inc. v. State, supra, 257 Conn. 449.

The defendants also contend that MERS' equal protection claim is legally insufficient because the statute's differing treatment of “nominees of mortgagees” and other filers is rationally related to the State's legitimate governmental interest in raising revenue.

“In the context of an equal protection challenge to social and economic legislation that does not infringe upon a fundamental right or affect a suspect group, the classification drawn by the statute will not violate the equal protection clause if it is rationally related to a legitimate public interest.”  (Internal quotation marks omitted.)  City Recycling, Inc v. State, supra, 257 Conn. 445.  “[I]n areas of social and economic policy that neither proceed along suspect lines nor infringe fundamental constitutional rights, the [e]qual [p]rotection [c]lause is satisfied [as] long as [ (1) ] there is a plausible policy reason for the classification ․ [ (2) ] the legislative facts on which the classification is apparently based rationally may have been considered to be true by the governmental decisionmaker ․ and [ (3) ] the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational ․” (Citations omitted;  internal quotation marks omitted.)  Kerrigan v. Commissioner of Public Health, 289 Conn. 135, 158–59, 957 A.2d 407 (2008).

The defendants point out that the complaint alleges that the new statute is “a revenue-enhancing measure” (Revised Complaint, Count One, ¶ 6) and that raising revenue is a legitimate governmental interest.   The defendants assert that the test for constitutionality of the statute is whether it has “a conceivable rational basis.”   Thus, on the face of the complaint, the defendants contend that the court can find a conceivable rational basis, i.e., charging nominees of mortgages “higher filing fees in order to offset the lost future revenue that would otherwise have been generated by future assignments had the nominee been a traditional mortgagee.”  (Memorandum in Support of Motion to Strike, p. 14.)

The plaintiff's counter that they have clearly alleged that there is no rational public policy purpose for the different classification afforded to MERS under the Public Acts, and those particular allegations must be taken as true:

52.  There is no rational basis or logical connection between the increased fees contained in § 7–34a(a)(2), the allocation scheme in § 49–10(h), and the filing of documents by a “nominee of a mortgagee” which would justify either the increased fees levied against a “nominee of a mortgagee” as that phrase is defined, for the documents recorded on the land records, or against MERS specifically.

(Revised Complaint, Count One, ¶ 52.)

* * *

66. General Statutes §§ 7–34a(a)(2) and 49–10(h) violate the plaintiffs' rights to equal protection guaranteed under the United States Constitution as MERS has been targeted as a “class of one” and, moreover, is being required to pay increased and additional fees although engaged in the same conduct as others similarly situated, without any legitimate purpose behind such classification.   U.S. Const. amend.   XIV.

(Revised Complaint, Count One, ¶ 66.)

The state argues that these are nothing more than naked legal conclusions, unsupported by any factual allegations, and that therefore Count One is legally insufficient.   The court disagrees.   In reviewing the legal sufficiency of a pleading, “substance is considered over form.  [The] ultimate concern is to assure substantial justice between the parties.”  Montanaro v. Gorelick, 73 Conn.App. 319, 324, 807 A.2d 1083 (2002).  “[T]he complaint is required only to fairly put the defendant on notice of the claims against him ․ As long as the pleadings provide sufficient notice of the facts claimed and the issues to be tried and do not surprise or prejudice the opposing party, we will not conclude that the complaint is insufficient to allow recovery.”  (Citation omitted;  internal quotation marks omitted.)  Id., 323–24.   The plaintiffs have pleaded subordinate facts alleging that MERS is being targeted to pay higher recording fees than other mortgagees and that such differential treatment is “without any legitimate purpose.”   That is pleading of facts sufficient to survive a motion to strike;  is it is not necessary to plead the particular evidence that provides the proof of those allegations.

Moreover, the court does not believe it is in the interest of substantial justice between the parties to conduct a rational basis review of the challenged legislation based solely on the allegations of the complaint.   Although our Supreme Court has acknowledged without significant comment the use of a motion to strike to determine whether or not there is a rational basis for legislation challenged on equal protection grounds, see Keane v. Fischetti, 300 Conn. 395, 13 A.3d 1089 (2011), and Batte–Holmgren v. Commissioner of Public Health, 281 Conn. 277, 914 A.2d 996 (2007), this court is not persuaded that a motion to strike is the appropriate vehicle for deciding the rational basis issue in this particular case.

This is not a situation where the parties are in agreement that the complaint sets forth all the facts pertinent to the question of whether there is a rational basis for the classification created by General Statutes §§ 7–34a(a)(2) and 49–10(h).  The State suggests that rational basis review involves a question of pure law, and should therefore be decided with reference to the facts alleged, taken as true.   The plaintiffs contend that findings of fact based on evidence presented are needed to properly conduct the three-part rational basis analysis in Kerrigan v. Commissioner of Public Health, supra.   The court believes that rational basis review is more properly characterized as a mixed question of law and fact ² which may be decided by means of a motion to strike in certain circumstances, but not in all circumstances.   The Kerrigan analysis is both fact-intensive and fact-specific, and in this particular case the court does not believe that all the facts necessary to properly conduct the Kerrigan analysis are apparent from a reading of the complaint.

For the reasons stated, the Motion to Strike Counts One and Six is denied.³

C. COUNT TWO AND COUNT SEVEN (Substantive Due Process)

With respect to Counts Two and Seven, the parties have in large part repeated the arguments made with respect to the equal protection counts.   This is understandable in that Connecticut courts interpreting both the state and federal constitutions approach questions of substantive due process the same way they approach questions of equal protection, requiring that “an act regulating economic activity must bear a reasonable relationship to a proper legislative purpose in a manner that is neither arbitrary nor discriminatory.”  Caldor's, Inc v. Bedding Barn, Inc., 177 Conn. 304, 314–15, 417 A.2d 343 (1979).

Accordingly, for the same reasons expressed with respect to Counts One and Six, the Motion to Strike is denied as to Counts Two and Seven.

D. COUNT FIVE (Commerce Clause)

The plaintiffs seek a judgment declaring “that application of General Statutes § 7–34a(a)(2) impermissibly interferes with interstate commerce.”   Count Five of the Revised Complaint alleges, in pertinent part, that

66. General Statutes §§ 7–34a(a)(2) and 49–10(h) violate the Commerce Clause of the United States Constitution, U.S. Const. art. 1, § 8, as the statutes explicitly discriminate against interstate commerce in a manner that is not fairly apportioned or reasonably connected to the services provided by either the Town Clerks or the State.

(Revised Complaint, Count Five, ¶ 66.)

The defendants argue that Count Five is legally insufficient because the plaintiffs have “failed to demonstrate that the new ․ statute has a ‘disparate impact on interstate commerce’ ․ namely ‘a burden on interstate commerce that is qualitatively or quantitatively different from that imposed on intrastate commerce.’  “ (Defendants' Memorandum in Support of Motion to Strike, p. 21.)   Focusing not on what must be pleaded, but rather on what must be proved, the defendants argue that the increased recording fees charged to the “nominee of a mortgagee” pursuant to §§ 7–34a and 49–10(h) do not disparately impact interstate commerce because the statute applies equally to in-state and out-of-state filers and because the statute is “facially neutral.”   Any entity that meets the statutory definition of a nominee of a mortgagee pays the fees, whether that company is based in Connecticut or in any other state.

In response, the plaintiffs argue that the definition of a “nominee of a mortgagee” in General Statutes § 7–34a(a)(2)(C) burdens interstate commerce by targeting the plaintiffs' business based only upon their maintenance and operation of a “national electronic database.” ⁴  MERS contends that it is charged a recording fee three times higher than all other filers solely because it registers mortgage loans on a national electronic database that allows MERS members across the country to easily and efficiently transfer those loans.   Thus, the plaintiffs contend, the recording fee discriminates against or unduly burdens the interstate flow of commerce and violates the “dormant” Commerce Clause, also known as the “negative” Commerce Clause, of the United States Constitution.

The “dormant” or “negative” Commerce Clause is a restriction on state action implicit in the operation of the Commerce Clause.   The constitution expressly grants Congress the power to regulate commerce “among the several states.”   The Supreme Court has held that this grant of power implies a negative converse—a restriction prohibiting a state from passing legislation that improperly burdens or discriminates against interstate commerce.  “Though phrased as a grant of regulatory power to Congress, the Clause has long been understood to have a ‘negative’ aspect that denies the States the power unjustifiably to discriminate against or burden the interstate flow of articles of commerce.”   (Citations omitted.)  Oregon Waste Systems, Inc. v. Dept. of Environmental Quality of Oregon, 511 U.S. 93, 98, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994).

The Supreme Court has held that the first step in analyzing any law subject to judicial scrutiny under the dormant Commerce Clause is to determine whether it “regulates evenhandedly with only ‘incidental’ effects on interstate commerce, or discriminates against interstate commerce.”  Hughes v. Oklahoma, 441 U.S. 322, 336, 99 S.Ct. 1727, 60 L.Ed.2d 250 (1979).   State laws discriminating against interstate commerce on their face are virtually per se invalid.   Wyoming v. Oklahoma, 502 U.S. 437, 454, 112 S.Ct. 789, 117 L.Ed.2d 1 (1992).   In such situations, “the dormant Commerce Clause [requires] justifications for discriminatory restrictions on commerce [to] pass the strictest scrutiny.”  (Internal quotation marks omitted.)  Fulton Corp. v. Faulkner, 516 U.S. 325, 345, 116 S.Ct. 848, 133 L.Ed.2d 796 (1996).  “A state statute that clearly discriminates against interstate commerce is ․ unconstitutional unless the discrimination is demonstrably justified by a valid factor unrelated to economic protectionism ․” (Citation omitted;  internal quotation marks omitted.)  Fort Gratiot Sanitary Landfill, Inc. v. Michigan Dept. of Natural Resources, 504 U.S. 353, 359, 112 S.Ct. 2019, 119 L.Ed.2d 139 (1992).  “By contrast, nondiscriminatory regulations that have only incidental effects on interstate commerce are valid unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.”   (Citation omitted;  internal quotation marks omitted.)  Oregon Waste Systems, Inc. v. Dept. of Environmental Quality of Oregon, supra, 511 U.S. 99.

Reading the complaint in a manner most favorable to sustaining its legal sufficiency, the court concludes that it alleges in general terms that the legislation violates the dormant Commerce Clause because the burden imposed on interstate commerce by the increased fee is unjustified and unwarranted in relation to the putative local benefits it generates.   The plaintiffs allege that the increased fee charged only to MERS by reason of its maintenance of a “national electronic database” will “have a detrimental impact on the plaintiffs' business activities.”  (See Revised Complaint, Count Five, ¶ 53(b).)  Given the scope of the plaintiffs' business activities, it is not unreasonable to infer some degree of effect upon interstate commerce.⁵  This burden is contrasted to a “putative local benefit” which the complaint suggests is revenues of approximately $5.4 million in fiscal years 2014 and 2015.  (See Revised Complaint, Count Five, ¶ 62.)   Whether that is, or is not, “regulating evenhandedly” with an “incidental effect” on interstate commerce cannot be decided on the face of the pleadings.

Based on the foregoing the court finds that, when construed broadly and realistically, the allegations in Count Five sufficiently state a claim for a judgment declaring General Statutes §§ 7–34a(a)(2) and 49–10(h) violative of the Commerce Clause of the United States Constitution.   The motion to strike is therefore denied as to Count Five.

E. COUNT THREE (Bill of Attainder)

Count Three of the Revised Complaint alleges that

66. General Statutes §§ 7–34a(a)(2) and 49–10(h) were enacted to specifically target the plaintiffs and require them to pay increased and punitive fees without protection of judicial process, and is therefore an unlawful bill of attainder.  U.S. Const. art. 1, § 10.

(Revised Complaint, Count One, ¶ 66.)

The defendants argue that Count Three is not legally sufficient because the complaint specifically pleads that the statute is “a revenue-enhancing measure ․ to help balance the State's 2013 budget ․” and not a measure enacted to punish MERS. (See Memorandum in Support of Motion to Strike, pp. 2, 24, referencing Revised Complaint, ¶ 6.)   That is too narrow a reading of the allegations.   A fair reading of Count Three is that there exists a substantial controversy as to whether the increased fees imposed upon the plaintiff by General Statutes §§ 7–34a(a)(2) and 49–10(h) constitute a form of legislative “punishment” without judicial trial which is prohibited by the bill of attainder clause of the federal constitution.   Count Three explicitly alleges that the fees imposed by the statute are “punitive ․ without protection of judicial process ․ and therefore an unlawful bill of attainder.”

A bill of attainder “has three requirements, i.e., specification of the affected persons, punishment, and lack of a judicial trial.”  Hogan v. Dept. of Children & Families, 290 Conn. 545, 579, 964 A.2d 1213 (2009), citing Selective Service System v. Minnesota Public Interest Research Group, 468 U.S. 841, 847, 104 S.Ct. 3348, 82 L.Ed.2d 632 (1984).   Count Three meets those requirements.

The defendants also argue that the complaint lacks any factual allegations that would satisfy the three tests for legislative “punishment” recognized by the relevant case authority.

“[T]he [Supreme] Court [has] applied three tests to determine whether legislative punishment of the type contemplated by the [b]ill of [a]ttainder [c]lauses was imposed:  [1] the historical test, involving punishment traditionally judged to be prohibited by the [b]ill of [a]ttainder [c]lause, Nixon v. Administrator of [General Services ], 433 U.S. 425, 475, 97 S.Ct. 2777, 2806, 53 L.Ed.2d 867 (1977), including death, imprisonment, banishment, punitive confiscation of property by the sovereign and, in more recent times, laws barring designated individuals or groups from participation in specified employments or vocations, id. [474];  [2] the functional test, which analyz [es] whether the law under challenge, viewed in terms of the type and severity of burdens imposed, reasonably can be said to further nonpunitive legislative purposes, id. [475–76];  and [3] the motivational test, which inquire[s] whether the legislative record evinces a congressional intent to punish, id. [478].  (Internal quotation marks omitted.)   In the Matter of the Request for Extradition of McMullen, 989 F.2d 603, 607 (2d Cir.), cert. denied, sub nom.  McMullen v. United States, 510 U.S. 913, 114 S.Ct. 301, 126 L.Ed.2d 249 (1993).”

Hogan v. Dept. of Children & Families, 290 Conn. 545, 579–80, 964 A.2d 1213 (2009).

Construing the complaint in a manner most favorable to sustaining its legal sufficiency, the court finds that the allegations of Count Three speak to both the functional test and the motivational test under Hogan.   For example, the complaint alleges in general terms that the type and severity of the burdens imposed on MERS are so severe that they eclipse any conceivable legitimate purpose for the legislation.  (See Revised Complaint, Count Three, ¶¶ 6, 52.)   In addition, the complaint recites a detailed history of the “legislative genesis” of the challenged statutes (see Revised Complaint, Count Three, ¶¶ 54–61), from which an “intent to punish” might conceivably be discerned.

For these reasons, Count Three, when read in its entirety in such a way as to give effect to the pleading with reference to the general theory upon which it proceeded, see Grenier v. Commissioner of Transportation, 306 Conn. 523, 536, 51 A.3d 367 (2012), sufficiently states an action for a declaratory judgment based upon the imposition of legislative punishment in violation of the bill of attainder clause of the federal constitution, as that clause has been construed by the federal courts.   See Selective Service System v. Minn. Pub. Interest Research Grp., supra.   The motion to strike is therefore denied as to Count Three.

F. COUNTS FOUR and EIGHT (Taking)

Count Four of the Revised Complaint alleges that

66. General Statutes §§ 7–34a(a)(2) and 49–10(h) work to impose a taking of the plaintiffs' property for public use without just compensation, in violation of the United States Constitution.   U.S. Const. amends.   V, XIV.

(Revised Complaint, Count Four, ¶ 66.)

The Count Eight of the Revised Complaint alleges that

66. General Statutes §§ 7–34a(a)(2) and 49–10(h) work to impose a taking of the plaintiffs' property for public use without just compensation, in violation of the Connecticut Constitution.   Conn. Const.   Art. First, § 11.

(Revised Complaint, Count Eight, ¶ 66.)

The fifth amendment to the United States Constitution provides in relevant part:  “[P]rivate property [shall not] be taken for public use, without just compensation.”   Article first, § 11, of the Constitution of Connecticut provides:  “The property of no person shall be taken for public use, without just compensation therefor.”   The fifth amendment of the United States Constitution imposes restrictions upon states as it does upon the federal government.  Penn Central Transport Co. v. New York City, 438 U.S. 104, 122, 98 S.Ct. 2646, 57 L.Ed.2d 631 (1978).   As with other types of constitutional claims, the analysis is similar under both constitutions.   See, e.g., A. Gallo & Company v. Commissioner of Environmental Protection, 309 Conn. 810, 73 A.3d 693 (2013) (analyzing both federal and state takings claims together).

The jurisprudence surrounding unconstitutional takings recognizes two distinct types, or classes of takings:  physical or per se takings, and regulatory takings.  “The text of the Fifth Amendment itself provides a basis for drawing a distinction between physical takings and regulatory takings.   Its plain language requires the payment of compensation whenever the government acquires private property for a public purpose, whether the acquisition is the result of a condemnation proceeding or a physical appropriation.   But the Constitution contains no comparable reference to regulations that prohibit a property owner from making certain uses of her private property.   Our jurisprudence involving condemnations and physical takings is as old as the Republic and, for the most part, involves the straightforward application of per se rules.   Our regulatory takings jurisprudence, in contrast, is of more recent vintage and is characterized by essentially ad hoc, factual inquiries ․ designed to allow careful examination and weighing of all the relevant circumstances.”  (Citation omitted;  internal quotation marks omitted.)  Brown v. Legal Foundation of Washington, 538 U.S. 216, 233, 123 S.Ct. 1406, 155 L.Ed.2d 376 (2003).

The defendants argue that Counts Three and Eight are legally insufficient because the plaintiffs have not alleged a legally cognizable property right.   “In order to state a claim under the takings clause ․ a plaintiff first must establish that he or she possesses a constitutionally protected interest in the disputed property.”  (Citations omitted.)  A. Gallo & Company v. Commissioner of Environmental Protection, supra, 309 Conn. 824.   The defendants point out that the plaintiff's challenge only the increase in recording fees, and not the government action of charging a recording fee in the first place.   In opposition, the plaintiffs assert that “money is certainly property,” Id., (quoting Pine v. Chicago Title & Trust Co., 182 U.S. 438, 443 (1901)), and claim a “taking” of that property in the form of an increased fee applicable exclusively to MERS. Construing the allegations in a manner most favorable to the pleader, the court finds that a property interest sufficient to support a takings claim has been made.   Similarly, the plaintiffs have adequately alleged that the increased fees collected from MERS are deposited to the State General Fund and to municipal general revenue accounts and therefore dedicated for public use.

However, the same cannot be said of the plaintiffs' claim that a “taking” without compensation has occurred because MERS “is being deprived of its property by being required unjustly to pay triple the fee attributable to any other filer in order to avail itself of the recording process offered by Town Clerks in the State of Connecticut.”  (Memorandum in Opposition at p. 33.)   The United States Supreme Court has held that the mere fact that government action places a singular burden on one, as opposed to many, does not automatically establish an unconstitutional taking.  Penn Central Transportation Co v. New York, supra, 438 U.S. 133–34 (legislation designed to promote the general welfare will not be invalid because it imposes unique burdens exclusively on some and not on others).

The defendants also argue that no taking has occurred as a matter of law because one is not required to record a mortgage on the land records in Connecticut, and thus the legislation does not require MERS to pay any recording fee, increased or not.   But that argument runs afoul of the “unconstitutional condition doctrine,” which holds that the government cannot condition the provision of a discretionary benefit (e.g., a permit, license, grant, contract, etc.) upon a requirement that a person give up a constitutionally protected right.   See, e.g, Koontz v. St. Johns River Water Management District, 133 S.Ct. 2586, 2596, 186 L.Ed.2d 697 (2013) (“we have repeatedly rejected the argument that if the government need not confer a benefit at all, it can withhold the benefit because someone refuses to give up constitutional rights”).

In the end, Counts Four and Eight are legally insufficient because, as a matter of law, there is no substantial justiciable controversy as to whether the increased fees imposed upon the plaintiff by General Statutes §§ 7–34a(a)(2) and 49–10(h) constitute a “taking” without just compensation which is prohibited by the Fifth and Fourteenth Amendments of the United States Constitution and United States Constitution and Art. First, § 11 of the Connecticut Constitution.

The United States Supreme Court has held that “[i]t is beyond dispute that [t]axes and user fees ․ are not takings.”  (Internal quotation marks omitted.)  Koontz v. St. Johns River Water Management District, 133 S.Ct. 2586, 2600, 186 L.Ed.2d 697 (2013), citing United States v. Sperry Corp., 493 U.S. 52, 62 n.9, 110 S.Ct. 387, 107 L.Ed.2d 290 (1989);  A. Magnano Co. v. Hamilton, 292 U.S. 40, 44, 54 S.Ct. 5989, 78 L.Ed. 1109 (1934);  Dane v. Jackson, 256 U.S. 589, 599, 41 S.Ct. 566, 65 L.Ed. 1107 (1921);  Henderson Bridge Co. v. Henderson City, 173 U.S. 592, 614–15, 19 S.Ct. 553, 43 L.Ed. 823 (1899);  County of Mobile v. Kimball, 102 U.S. 691, 703, 26 L.Ed. 238 (1881).

The plaintiffs in this action repeatedly and uniformly allege as a fact that the government action they challenge is the imposition of a “fee.”   They specifically allege that the money appropriated from them is a “fee” collected by town clerks in connection with the recording of documents.⁶  Since the imposition of a “fee” is not an unconstitutional governmental “taking” under well-established principles of constitutional law, the plaintiffs they have not alleged facts “showing the existence of a substantial controversy or uncertainty of legal relations” with respect to their claims of a government “taking” without just compensation.   For that reason, their claims for declaratory relief are legally insufficient.

Accordingly, the motion to strike is granted as to Counts Four and Eight.

G. COUNTS NINE THROUGH TWELVE (42 U.S.C. § 1983)

Since the motion to strike has been denied as to Counts One and Six (Equal Protection) Counts Two and Seven (Substantive Due Process) and Count Five (Commerce Clause), it is also denied as to Counts Nine, Ten and Eleven.

Since the motion to strike was granted as to Counts Four and Eight (Takings), it is also granted as to Count Twelve.

III. CONCLUSION

The motion to strike is GRANTED as to Counts Four, Eight and Twelve, and DENIED as to all remaining counts.

BY THE COURT,

Sheridan, J.

FOOTNOTES

FN1. The plaintiffs allege “upon information and belief” that MERS is the only entity in Connecticut and elsewhere that falls within the definition of “nominee of a mortgagee” set forth in the statute.   This court never knows what exactly to make of an allegation made “upon information and belief” in the context of a motion to strike.   See, e.g, HSBC Bank USA v. Oakes, Superior Court, Judicial District of New Britain at New Britain, Docket No. HHB CV 11–6009207–S (Aug. 7, 2012, Sheridan, J.) [54 Conn. L. Rptr. 556].   In this case, the phrase qualifies a crucial allegation:  that MERS is the sole entity affected by the statute.   But, taking the complaint as a whole, there are other facts which suggest that the plaintiffs' “information and belief” has a basis in fact and is not mere conjecture (see ¶ 50, 57).   In addition, the defendants do not appear to contest the allegation as not “well-pleaded” for purposes of a motion to strike and have themselves argued that “MERS is currently the only company meeting the statutory definition of a nominee.”  (Memorandum in Support of Motion to Strike at p. 19.).  FN1. The plaintiffs allege “upon information and belief” that MERS is the only entity in Connecticut and elsewhere that falls within the definition of “nominee of a mortgagee” set forth in the statute.   This court never knows what exactly to make of an allegation made “upon information and belief” in the context of a motion to strike.   See, e.g, HSBC Bank USA v. Oakes, Superior Court, Judicial District of New Britain at New Britain, Docket No. HHB CV 11–6009207–S (Aug. 7, 2012, Sheridan, J.) [54 Conn. L. Rptr. 556].   In this case, the phrase qualifies a crucial allegation:  that MERS is the sole entity affected by the statute.   But, taking the complaint as a whole, there are other facts which suggest that the plaintiffs' “information and belief” has a basis in fact and is not mere conjecture (see ¶ 50, 57).   In addition, the defendants do not appear to contest the allegation as not “well-pleaded” for purposes of a motion to strike and have themselves argued that “MERS is currently the only company meeting the statutory definition of a nominee.”  (Memorandum in Support of Motion to Strike at p. 19.)

FN2. A “mixed question of law and fact” requires “the application of the controlling legal standard to the historical facts.”  State v. Mitchell, 296 Conn. 449, 459, 996 A.2d 251 (2010), or “the application of historical facts to questions of law.”  Michael T. v. Commissioner of Correction, 122 Conn.App. 416, 426, 999 A.2d 818 (2010), rev'd, 307 Conn. 84, 52 A.3d 655 (2012) (Beach, J. dissenting)..  FN2. A “mixed question of law and fact” requires “the application of the controlling legal standard to the historical facts.”  State v. Mitchell, 296 Conn. 449, 459, 996 A.2d 251 (2010), or “the application of historical facts to questions of law.”  Michael T. v. Commissioner of Correction, 122 Conn.App. 416, 426, 999 A.2d 818 (2010), rev'd, 307 Conn. 84, 52 A.3d 655 (2012) (Beach, J. dissenting).

FN3. The parties are in agreement that the rational basis review applied to claims under the Connecticut constitution is identical to that employed for the federal constitution.   See Defendant's Memorandum in Support of Motion to Strike at p. 16 and Plaintiff's Memorandum in Opposition at p.14, n.6. Therefore a separate analysis as to Count Six is unnecessary..  FN3. The parties are in agreement that the rational basis review applied to claims under the Connecticut constitution is identical to that employed for the federal constitution.   See Defendant's Memorandum in Support of Motion to Strike at p. 16 and Plaintiff's Memorandum in Opposition at p.14, n.6. Therefore a separate analysis as to Count Six is unnecessary.

FN4. General Statutes § 7–34a(a)(2)(C) defines a “nominee of a mortgagee” 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.”.  FN4. General Statutes § 7–34a(a)(2)(C) defines a “nominee of a mortgagee” 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.”

FN5. According to Exhibit C to the Revised Complaint, MERS currently tracks over 30 million active loans across the country in its “national electronic database.”.  FN5. According to Exhibit C to the Revised Complaint, MERS currently tracks over 30 million active loans across the country in its “national electronic database.”

FN6. See, e.g., Revised Complaint ¶¶ 1, 2, 4, 5, 6, 24, 29, 30, 31, 32, 33, 34, 35, 38, 40, 41, 42, 45, 46, 50, 51, 53..  FN6. See, e.g., Revised Complaint ¶¶ 1, 2, 4, 5, 6, 24, 29, 30, 31, 32, 33, 34, 35, 38, 40, 41, 42, 45, 46, 50, 51, 53.

Sheridan, David M., J.