MERSCORP HOLDINGS, INC., et al. v. DANNEL P. MALLOY, GOVERNOR, STATE OF CONNECTICUT, et al., SC 19376

Judicial District of Hartford

 

      Mortgages; Recording Fees; Whether Statutory Amendments Increasing Fees for MERS Filings Violate Equal Protection, Due Process; Whether Increased Fees Burden Interstate Commerce or Constitute Bill of Attainder.  MERSCORP Holdings, Inc., is an out-of-state organization made up of thousands of lenders, servicers, investors and government institutions.  It owns a national database made available to its members that tracks ownership of mortgages and changes in mortgage servicing rights.  Its subsidiary, Mortgage Electronic Registration Systems, Inc. (MERS), acts as a mortgagee and the holder of the legal security interest for loans registered on the database, which are recorded in the local land records.  As MERS remains the mortgagee of record throughout the life of a loan, assignments and transfers of mortgages between MERS members need not be recorded in the land records.  MERSCORP and MERS brought this action seeking a declaration that General Statutes §§ 7-34a (a) (2) and 49-10 (h), as amended by Public Acts Nos. 13-184 and 13-247, are unconstitutional.  Those statutes set the fees that towns charge for recording documents in the land records, and the amendments increased the fees for a new category of filers called “nominees of mortgagees.”  MERS is the only entity meeting the definition of a “nominee of a mortgagee” and, as of July 15, 2013, town clerks must collect substantially more from MERS for the filing of deeds, assignments and other documents than from other filers.  The plaintiffs alleged that the amendments violate their equal protection and due process rights and that they result in an unconstitutional burden on interstate commerce.  They also claimed that the amendments constitute an unconstitutional bill of attainder in that they were specifically intended to target and punish MERS.  The trial court granted summary judgment in favor of the defendants.  In finding no equal protection violation, the court found that the higher fees imposed on MERS were rationally related to the legitimate governmental purpose of raising revenue and suggested that the differing treatment of MERS was justified because, as assignments and transfers of mortgages between MERS members need not be recorded, MERS is subject to recording fees less often than other mortgagees.  The court found that the plaintiffs’ substantive due process claim failed for the same reason.  In ruling that the amendments did not unconstitutionally burden interstate commerce, the court found that they treat in-state and out-of-state nominees of mortgagees for loans registered on a national database the same.  It also found that the plaintiffs failed to show that the amendments imposed a burden on interstate commerce that was clearly excessive in relation to the putative local benefits, that they adversely impacted MERS insofar as the increased fees will likely be borne by borrowers, or that they regulated commercial activity occurring wholly beyond Connecticut’s borders.  Finally, the court found that the amended statutory scheme did not constitute a bill of attainder because, while MERS was clearly the object of the legislation, the plaintiffs failed to establish that the amendments were intended to punish MERS.  The plaintiffs appeal, claiming that the trial court improperly rendered judgment in favor of the defendants.