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Case 2:11-cv-06968-JCJ Document 96 Filed 02/12/14 Page 1 of 33

IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA MONTGOMERY COUNTY, PENNSYLVANIA, RECORDER OF DEEDS, by and through Nancy J. Becker in her official capacity as Recorder of Deeds of Montgomery County, on its own behalf and on behalf of all others similarly situated, Plaintiff, v. MERSCORP, INC., and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants. : : : : : : : : : : : : : : : : :




February 11, 2014

This matter is presently before the Court on Motion of the Plaintiff for Class Certification. After careful consideration

of the arguments and evidentiary materials submitted by the parties, we shall grant the motion. Statement of Relevant Facts Plaintiff Nancy J. Becker is the duly-elected Recorder of Deeds for Montgomery County, Pennsylvania. Purporting to act in

her official capacity on behalf of herself and all other similarly situated Pennsylvania County Recorder of Deeds Offices, Plaintiff’s Complaint seeks to compel Defendants to record all

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mortgage assignments that were, are now and will in the future be, registered within the MERS “system” and pay the attendant recording fees1. With that goal in mind, Plaintiff seeks

primarily equitable relief in the form of a declaration and/or permanent injunction compelling Defendants to record the disputed mortgage assignments, and an order quieting title and finding that Defendants were unjustly enriched. Plaintiff filed her complaint on November 7, 2011. Defendants moved to dismiss the complaint in its entirety for failure to state a claim upon which relief may be granted which was, for the most part denied, on October 19, 2012.2 Contemporaneous to filing an Answer to Plaintiff’s Complaint, Defendants filed a Second Motion to Dismiss Plaintiff’s quiet title claim on December 10, 2012. Following the denial of this

second motion on March 6, 2013, the Plaintiff filed the instant Motion to Certify Class on April 26, 2013. Specifically, the

proposed class would consist of each county Recorder of Deeds in Pennsylvania in his or her official capacity and would therefore consist of 67 members in all.

Not surprisingly, Defendants

As we explained in our Memorandum and Order of October 12, 2012 granting Defendants’ Motion to Dismiss in limited part, “[t]he gravamen of the Plaintiff’s claims is that the Defendants have created a private system for tracking conveyances of interests in land which bypasses the statutorily created recording system in a manner incompatible with Pennsylvania law,” most particularly, the Recording Statute, 21 P.S. §351. (See, e.g., 904 F. Supp. 2d 436, 439 (E.D. Pa. 2012)). In the Memorandum and Order of October 19, 2012, the only claim which was dismissed was Plaintiff’s claim for civil conspiracy against Defendants.


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oppose the motion. Standards Applicable to Class Certification Requests “The class action is ‘an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only.’” Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1432, 185 L. Ed.2d 515, 521 (2013)(quoting Califano v. Yamasaki, 442 U.S. 682, 700-701, 99 S. Ct. 2545, 61 L. Ed.2d 176 (1979)). order to justify a departure from that rule, ‘a class representative must be part of the class and possess the same interest and suffer the same injury as the class members.’” Wal“In

Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2550, 180 L. Ed.2d 374, 388-389 (2011)(quoting, inter alia, East Texas Motor Freight System, Inc. v. Rodriguez, 431 U.S. 395, 403, 97 S. Ct. 1891, 52 L. Ed.2d 453 (1977)). The principles and procedures governing class actions are clearly delineated in Fed. R. Civ. P. 23. The initial

prerequisites are set forth in Rule 23(a), which reads as follows: One or more members of a class may sue or be sued as representative parties on behalf of all members only if: (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately 3

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protect the interests of the class. Thereafter, under Rule 23(b), A class action may be maintained if Rule 23(a) is satisfied and if: (1) prosecuting separate actions by or against individual class members would create a risk of: (A) inconsistent or varying adjudications with respect to individual class members that would establish incompatible standards of conduct for the party opposing the class; or (B) adjudications with respect to individual class members that, as a practical matter, would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests; (2) the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole; or (3) the court finds that the questions of law or fact common to class members predominate over any questions affecting only individual members and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy. The matters pertinent to these findings include: (A) the class members’ interests in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already begun by or against class members; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the likely difficulties in managing a class action.


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Under these parameters, “the class action device saves the resources of both the courts and the parties by permitting an issue potentially affecting every class member to be litigated in an economical fashion.” Carrera v. Bayer Corp., 727 F.3d 300,

306 (3d Cir. 2013)(quoting, General Telephone Company of the Southwest v. Falcon, 457 U.S. 147, 155, 102 S. Ct. 2364, 72 L. Ed. 2d 740 (1982)). It has been observed that the requirements

set out in Rule 23 are not mere pleading rules - the party seeking certification bears the burden of establishing each element of Rule 23 by a preponderance of the evidence. Marcus v. A

BMW of North America, LLC, 687 F.3d 583, 591 (3d Cir. 2012).

party’s assurances to the court that it intends or plans to meet the requirements is insufficient and thus it has been said that “[t]he evidence and arguments a district court considers in the class certification decision call for rigorous analysis.” In re

Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305, 318 (3d Cir. 2008). The trial courts are well-positioned to decide which facts and legal arguments are most important to each Rule 23 requirement and possess broad discretion to control proceedings and frame issues for consideration. Id., 552 F.3d at 310.

“Careful application of Rule 23 accords with the pivotal status of class certification in large-scale litigation, because ‘denying or granting class certification is often the defining


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moment in class actions for it may sound the “death knell” of the litigation on the part of plaintiffs or create unwarranted pressure to settle nonmeritorious claims on the part of defendants.’” Id, (quoting Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 162 (3d Cir. 2001)). In

conducting its rigorous analysis, the district courts “must resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits - including disputes touching on elements of the cause of action.” Marcus v.

BMW of North America, 687 F.3d 583, 591 (3d Cir. 2012)(quoting In re Hydrogen Peroxide, 552 F.3d at 307). Indeed, “Rule 23 gives no license to shy away from making factual findings that are necessary to determine whether the Rule’s requirements have been met.” Id. Discussion

As noted, to “warrant certification, a ‘class action must satisfy the four requirements of Rule 23(a) and the requirements of either Rule 23(b)(1),(2) or (3).’” Mylan Pharmaceuticals, Inc. v. Warner Chilcott Public Limited Co., Civ. A. No. 12-3824, 2013 U.S. Dist. LEXIS 168947 at *9 (E.D. Pa. Nov. 20, 2013)(emphasis added, quoting Marcus, 687 F.3d at 590). “In addition, many

courts and commentators have recognized that an essential prerequisite of a class action, at least with respect to actions under Rule 23(b)(3), is that the class must be currently and readily ascertainable based on objective criteria.” Marcus, 687


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F.3d at 592-593.

In other words, “[a]s an ‘essential

prerequisite’ to class certification, plaintiff must show by a preponderance of the evidence that the class is ascertainable.” Hayes v. Wal-Mart Stores, Inc., 725 F.3d 349, 354 (3d Cir. 2013)(citing Marcus, 687 F.3d at 692). “Ascertainability is

important because it ‘eliminates serious administrative burdens ... by insisting on the easy identification of class members,” allows for the best notice practicable, and thereby protects absent class members; and protects defendants by clearly identifying the individuals to be bound by the final judgment.’” Hayes, 725 F.3d at 355 (quoting Marcus, 687 F.3d at 593). However, “if class members are impossible to identify without extensive and individualized fact-finding, or ‘mini-trials,’ then a class action is inappropriate.” Carrera v. Bayer Corp., 727 F.3d 300, 303 (3d Cir. 2013)(quoting Marcus, supra, at 593). Further, if class members cannot be ascertained from a defendant’s records, there must be a “reliable, administratively feasible alternative;” a method that would amount to no more than ascertaining by potential class members “say-so” should not be approved. 1. Id, (quoting Id, at 594); Hayes, 725 F.3d at 355.

Rule 23(a) Requirements

Routinely, the four Rule 23(a) requirements are described as “numerosity,” “commonality,” “typicality,” and “adequate representation” and are said to “effectively limit the class


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claims to those fairly encompassed by the named plaintiff’s claims.” Dukes, 131 S. Ct. at 2550, 180 L. Ed. 2d at 389

(quoting, General Telephone Co. of Southwest v. Falcon, supra, and General Telephone Co. of Northwest v. EEOC, 446 U.S. 318, 330, 100 S. Ct. 1698, 64 L. Ed. 2d 319 (1980)). To satisfy the

numerosity requirement, “no minimum number of plaintiffs is required,” but under Third Circuit precedent “generally, if the named plaintiff demonstrates that the potential number of plaintiffs exceeds 40, the first prong of Rule 23(a) has been met.” Hayes, 725 F.3d at 357, n.5 (3d Cir. 2013)(quoting

Stewart v. Abraham, 275 F.3d 220, 226-227 (3d Cir. 2001)). Although “Rule 23(a)(1) does not require a plaintiff to offer direct evidence of the exact number and identities of the class members, in the absence of direct evidence, a plaintiff must show sufficient circumstantial evidence specific to the products, problems, parties, and geographic areas actually covered by the class definition to allow a district court to make a factual finding.” Id, (quoting Marcus, at 596-597). “Only then may the

court rely on ‘common sense’ to forgo precise calculations and exact numbers.” Id.

We find that the numerosity and ascertainability requirements are easily satisfied in the case at hand. Plaintiff

Becker seeks to certify as a class “each County Recorder of Deeds in Pennsylvania in his or her official capacity.” Given that


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there are 67 counties in the Commonwealth of Pennsylvania and that the identities of each of the individuals who presently hold the office of Recorder of Deeds is a matter of public record, we conclude that the proposed class, while admittedly on the small side, is sufficiently numerous that joinder of all would be impracticable and unwieldy and that each and every member may easily be identified and noticed3. Turning to the second component of Rule 23(a), “commonality requires the plaintiff to demonstrate that the class members

3 Defendants claim that Plaintiff has failed to demonstrate numerosity, adequacy and typicality because not all Pennsylvania Recorders of Deeds have the authority to sue on their own behalf given the provisions of the various Pennsylvania Township Codes which require either appointment of counsel only by the County Commissioners, appointment by county solicitor with consent of the commissioners or, in the case of Allegheny County, review by Professional Services Review Committee. See, e.g., 16 P.S. §§210, 904, 1801, 3904, 5001. However, as the Supreme Court decreed in Shady Grove Orthopedic Assoc. v. Allstate Insurance Co., 559 U.S. 393, 130 S. Ct. 1431, 176 L. Ed.2d 311 (2010), Rule 23 is a “categorical rule entitling a plaintiff whose suit meets the specified criteria to pursue his claim as a class action,” and thus “if the prescribed preconditions [of Rule 23] are satisfied, a class action may be maintained.” Id, 559 U.S. at 398, 399, 130 S. Ct. at 1437, 1438. Rule 23 further charges the district courts with assessing the qualifications of class counsel and deciding who to appoint to represent the representative plaintiff and the class in a class action – it is entirely silent on the matter of requiring consent and/or input from local entities in class actions such as this one involving political subdivisions like the Pennsylvania counties here. As noted in Shady Grove, “it is not the substantive or procedural nature or purpose of the affected state law that matters, but the substantive or procedural nature of the Federal rule,”...the validity of which depends entirely upon whether it regulates procedure. ... If it does, it is authorized [by the Rules Enabling Act, 28 U.S.C. §2072] and valid in all jurisdictions regardless of its incidental effect upon state-created rights.” 559 U.S. at 410, 130 S. Ct. at 1444.

Insofar as Rule 23 has been found to regulate procedure and its validity upheld by the Supreme Court, in assessing the certification question here we need consider only whether the pre-conditions set forth in the rule have been met. Id. See Also, Knepper v. Rite Aid Corp., 675 F.3d 249, 265 (3d Cir. 2012)(“we need only determine whether Rule 23 ‘really regulates procedure,’ which the [Supreme] Court has already concluded it does.”) Whether the individual recorders of deeds of each of the Pennsylvania counties have properly obtained authorization to retain counsel to represent them is, at least in this proposed class action, irrelevant.


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‘have suffered the same injury.’” Dukes, 131 S. Ct. at 2551, 180 L. Ed.2d at 389 (quoting Falcon, 457 U.S. at 157). It is the law

in the Third Circuit that a putative class satisfies the commonality requirement if “the named plaintiffs share at least one question of fact or law with the grievances of the prospective class.” Rodriguez v. National City Bank, 726 F.3d

372, 382 (3d Cir. 2013)(quoting Baby Neal v. Casey, 43 F.3d 48, 56 (3d Cir. 1994)). Thus, “a finding of commonality does not

require that all class members share identical claims, ...[as] factual differences among the claims of the putative class members do not defeat certification.” In re Prudential Insurance

Company America Sales Practices Litigation, 148 F.3d 283, 310 (3d Cir. 1998). Id, (quoting Baby Neal, supra.). “Their claims must

depend upon a common contention” which “must be of such a nature that it is capable of classwide resolution,” so that determination of the truth or falsity of this common contention “will resolve an issue that is central to the validity of each one of the claims in one stroke.” L. Ed.2d at 389-390. Dukes, 131 S. Ct. at 2551, 180

In other words, there may be many legal and

factual differences among the members of a class, as long as all were subjected to the same harmful conduct by the defendant.” Rodriguez, supra. Here, it appears that the claims of each of the putative class are in fact identical or very nearly so. Specifically, the


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harm which is alleged to have been visited upon all of them is the purportedly improper avoidance of recording mortgage assignments and paying the attendant recording fees. As a

consequence, it is alleged that the public records which all of the proposed class members are charged by Pennsylvania law with safeguarding and the accuracy of which they are charged with maintaining have been compromised. It is further averred that

all of the class members suffered additional harm in that they were deprived of the monies which would have accompanied the recording of each mortgage assignment. Inasmuch as both the

Defendant’s alleged conduct and the harm that is alleged to have resulted from that conduct are common to all class members, we find that the commonality requirement of Rule 23(a)(2) has been met here4. Typicality, the Rule 23(a)(3) requirement, is “designed to align the interests of the class and the class representative so that the latter will work to benefit the entire class through the pursuit of their own goals.” In re Prudential, 148 F.3d at 311 It has been observed that

(citing Baby Neal, 43 F.3d at 57).

both typicality and commonality “serve as guideposts for determining whether under the particular circumstances

While we recognize that the extent of damage(s) sustained and/or the amount(s) lost by each class member clearly varies from county to county, depending on the amount which each county charges for such services and the number of unrecorded assignments, we do not find this factual difference sufficient to overcome our finding of commonality.



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maintenance of a class action is economical and whether the named plaintiff’s claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence.” Dukes, 131 S. Ct. at 2551, n.5,

180 L. Ed.2d at 390, n.5 (quoting Falcon, 457 U.S. at 157-158, n. 13). Accordingly, “these requirements tend to merge” with one

another and “with the adequacy-of-representation requirement, although the latter requirement also raises concerns about the competency of class counsel and conflicts of interest.” Id,(citing Id.); In re Prudential, 148 F.3d at 310-311. To evaluate typicality, courts ask whether the named plaintiffs’ claims are typical – in common sense terms, of the class thus suggesting that the incentives of the named plaintiffs are aligned with those of the class. F.3d 291, 295-296 (3d Cir. 2006). Beck v. Maximus, Inc., 457

“Factual differences will not

render a claim atypical if the claim arises from the same event or practice or course of conduct that gives rise to the claims of the class members and if it is based on the same legal theory.” Id.,(quoting Baby Neal, 43 F.3d at 58). In application of these principles to this case, we likewise find that the typicality element is satisfied. The claims of Ms.

Becker arise from the same course of conduct and/or practices of the MERS defendants as do those of the other 66 Recorders of Deeds in the Commonwealth. That is, the designation of MERS as


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the mortgagee “as nominee” for the lender-member and its successors and assigns when the original mortgage is made and recorded and, in those cases where the loan is sold, subsequent registration of the change in note holder on the MERS system in lieu of publicly recording a mortgage assignment with the county recorders’ offices. While there are some factual disparities,

they are largely confined to the area of damages, such as the number of unrecorded mortgages, the amounts of the recording fees charged by each county, etc. and should in no way pose a conflict between the named plaintiff and the class which she seeks to represent. We thus easily find the typicality requirement to

have also been satisfied here. We next consider whether the representative party (i.e., Ms. Becker) will fairly and adequately protect the class’ interests. “[T]he adequacy requirement” of Rule 23(a)(4) “has two components: (1) concerning the experience and performance of class counsel; and (2) concerning the interests and incentives of the representative plaintiffs.” Dewey v. Volkswagen Thus

Aktiengesellschaft, 681 F.3d 170, 181-182 (3d Cir. 2012). the adequacy inquiry under Rule 23(a)(4) serves to uncover

conflicts of interest between named parties and the class they seek to represent. Amchem Products, Inc. v. Windsor, 521 U.S.

591, 625, 117 S. Ct. 2231, 2250, 138 L. Ed.2d 689 (1997). Indeed, the Third Circuit has “recognized that the linchpin of


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the adequacy requirement is the alignment of interests and incentives between the representative plaintiffs and the rest of the class,” and “not proof of vigorous pursuit of the claim.” Dewey, 681 F.3d at 183; In re Community Bank of Northern Virginia, 418 F.3d 277, 307 (3d Cir. 2005). Certain intra-class conflicts may cause the interests of the representative plaintiffs to diverge from those of the unnamed class members. Dewey, 681 F.3d at 183-184. “The adequacy

requirement ‘is designed to ferret out’ such conflicts of interest ‘and to ensure that the putative named plaintiff has the incentive to represent the claims of the class vigorously.’” Id, at 184 (quoting In re Visa Check/Master Money Antitrust Litigation, 280 F.3d 124, 145 (2d Cir. 2001), superceded by statute on other grounds, as recognized in Bateman v. Am. Multicinema, Inc., 623 F.3d 708, 722 (9th Cir. 2010) and Drennan v. PNC Bank, NA, 622 F.3d 275, 290 (3d Cir. 2010)). Of course, not all intra-class conflicts will defeat the adequacy requirement. Id. “‘The hard question concerning

intraclass conflicts asks which conflicts should matter, what divisions should render the class representation so defective in structure as to rise to the level of a constitutional dereliction,’ or violation of Rule 23(a)(4).” Id, (quoting

Samuel Issacharoff & Richard A. Nagareda, Class Settlements Under Attack, 156 U. Pa. L. Rev. 1649, 1678 (2008)). It is not enough


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for objectors to point to differences in claims, allocation amounts, or state laws without identifying how such differences demonstrate a conflict of interest. In re Pet Foods Product Rather,

Liability Litigation, 629 F.3d 333, 349 (3d Cir. 2010).

a “conflict must be fundamental to violate Rule 23(a)(4).” Dewey, 681 F.3d at 184 (quoting In re Literary Works in Elec. Databases Copyright Litig.,, 654 F.3d 242, 249 (2d Cir. 2011)). “A fundamental conflict exists where some class members claim to have been harmed by the same conduct that benefitted other members of the class.” Id, (quoting Valley Drug Co. v. A

Geneva Pharmaceuticals, 350 F.3d 1181, 1189 (11th Cir. 2003)). fundamental conflict also exists where it touches the “specific issues in controversy,” and thus “a conflict concerning the allocation of remedies amongst class members with competing

interests can be fundamental and can thus render a representative plaintiff inadequate.” Id. “A conflict that is unduly Id.

speculative, however, is generally not fundamental.”

In assessing the adequacy of a proposed class representative then, we are charged with answering: (1) whether an intra-class conflict exists and if so, (2) whether that conflict is “fundamental.” Id. Defendants assert that Plaintiff is not an

adequate class representative because of her pre-existing fiduciary obligations to Montgomery County and its residents which, Defendants contend, create an irreconcilable conflict with


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the fiduciary duty she would owe to the putative class members to prioritize their interests6. More particularly, Defendants point

to that portion of Ms. Becker’s deposition testimony in which she responded to its counsel’s question “If there is ever a conflict in the interest of Montgomery County residents and any other county, where do you go?” by stating that as the Recorder of Deeds for Montgomery County, her “first obligation is to Montgomery County...the residents of Montgomery County [who] elected her to collect...every penny that is due Montgomery County.” 116). (Exhibit B, Becker Deposition at pp. 107, 113, 115-

However, Plaintiff also testified that while she believed

she had a fiduciary obligation to Montgomery County residents in her role as Montgomery County Recorder of Deeds, she believed she had a fiduciary obligation to the other counties in Pennsylvania in her other role as class representative in this case and that she would be negligent in accepting a settlement which would only benefit Montgomery County. (Exhibit B, p. 112-113, 116-117).

Again, it is not enough for objectors to point to differences in claims, allocation amounts, or state laws without

Defendants further challenge Plaintiff’s adequacy as a class representative and her showing of typicality on the grounds that “her lawsuit improperly seeks to usurp the obligations and rights that other Pennsylvania counties have to decide on behalf of their own electorate and through their own required procedures whether to hire outside counsel to represent them and, if so, who and under what terms.” The Court finds this argument to be particularly disingenuous given that, in keeping with Rule 23(c)(2), class members have the option of requesting exclusion from the class. Hence, in the event that any class members believe that Plaintiff is usurping their rights or obligations, they are free to remove themselves from the class and from this action.



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identifying how such differences demonstrate a conflict of interest. Defendants have not identified or demonstrated how the

variances in recording fees charged, non-recorded assignments or each county’s decision-making processes operate as a conflict of interest. To reiterate, a fundamental conflict may be found

where some class members claim to have been harmed by the same conduct that benefitted other members of the class and one which is unduly speculative is not fundamental. Here, there has been

no showing that any of the class members have benefitted from the defendants’ alleged conduct; instead all have suffered the same or nearly identical harm. Further, the hypothetical which

defense counsel posed to Ms. Becker in her deposition is nothing other than pure speculation: while it is admittedly possible that a settlement would be offered only to Montgomery County for the harms which it allegedly sustained, it is far from likely given that a piecemeal settlement with only one out of sixty-seven counties would certainly not be in Defendants’ economic interest. Accordingly, given that we find an alignment of the interests and incentives of Ms. Becker with all of the members of the proposed class, we deem her to be an adequate class representative. As for class counsel, there does not appear to be any dispute as to their qualifications. As declared by Plaintiff in

her brief, her proposed class counsel includes the law firms of Kohn, Swift & Graf, PC, Lamb McErlane, PC, Cooper & Schaffer,


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LLC, Whitfield, Bryson & Mason, LLP and Cuneo, Gilbert & Laduca, LLP. The Kohn, Swift, Whitfield and Cuneo law firms are

experienced and established class action law firms which have previously been appointed as class counsel in a multitude of class actions involving consumer rights, fraud, financial and other matters in state and federal courts throughout the country. The Lamb McErlane firm is a Pennsylvania law firm with significant business litigation experience and the Schaffer law firm is the solicitor for the Montgomery County Recorder of Deeds which has counseled Plaintiff in this case since its inception. Defendants do not dispute or take issue with these facts. Rather, Defendants’ sole argument in opposition is that “putative class counsel cannot satisfy the adequacy requirement because they are seeking a legal ruling in other litigation that undermines Plaintiff’s lawsuit.” (Defendants’ Brief in

Opposition to Plaintiff’s Motion for Class Certification, at p. 24). The other litigation to which Defendants refer is that action which was commenced in the Court of Common Pleas of Washington County on behalf of the County of Washington and all other similarly situated Pennsylvania Counties against the U.S. National Bank Association by, inter alia, attorneys Gary Mason and Jason Rathod of the Whitfield Bryson firm and Jonathan Cuneo and Charles Laduca of the Cuneo law firm. (See, Defendants’


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Brief in Opposition to Plaintiff’s Motion for Class Certification, Exhibit “F”). This suit, which seeks class action

status under the Pennsylvania Rules of Civil Procedure, (Pa. R. C. P. 1701, et. seq.), does not appear to have yet been certified as a class action by the Washington County Court. In examining

the second amended complaint in that action, we note that that lawsuit charges U.S. Bank with failure to record mortgage assignments thus rendering false its claims that the loans which it was packaging and selling in various residential mortgagebacked security trusts were properly perfected. It seeks to

disgorge the benefits which the defendant bank reaped through this scheme, to quiet title and compel recordation in the County Recorder of Deeds offices of all of the assignments not properly recorded and a declaratory judgment that the subject mortgages are not perfected and injunctive relief precluding Defendant from continuing these practices in the future. Thus, while the facts

upon which both this case and the Washington County suit are based are the same and the remedies sought are similar, they are not completely identical. The two suits, however, are also not in conflict. As

Plaintiff points out, since the “‘certifying officers’” of MERS who enable the scheme to function are simultaneously the officers of MERS members,” which include, but are not limited to the officers, agents and employees of U.S. Bank, either or both may


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be properly charged with recording the assignments.

(See, Pl’s

Reply Memorandum in Further Support of Motion for Class Certification, at p. 20). The goals of both lawsuits are aligned

– to ensure a full, complete and accurate chain of title in all of the county Recorder of Deeds offices throughout the Commonwealth and to recover the fees attendant to accomplishing this objective. If the plaintiff in either of these actions is We thus

successful, then all of the recorders will benefit.

reject the assertion that Plaintiff’s counsel are seeking a legal ruling in the Washington County action that undermines Plaintiff’s lawsuit. For all of these reasons, we find the

adequacy component of Rule 23(a)(4) to also be satisfied. 2. Rule 23(b) Requirements

Recognizing that Rule 23 demands a showing that the proposed class falls into one of the categories outlined in subsection (b), Plaintiff submits that “[b]ecause declaratory, injunctive, and damages relief are appropriate, certification is warranted under each of [the Rule 23(b)] prongs.” (Pl’s Memorandum of Law

in Support of Motion for Class Certification, at p. 10). “Rule 23(b)(1) covers cases in which separate actions by or against individual class members would risk establishing ‘incompatible standards of conduct for the party opposing the class,’... or would ‘as a practical matter be dispositive of the interests’ of nonparty class members or ‘substantially impair or


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impede their ability to protect their interests.’” Amchem, 521 U.S. at 614, 117 S. Ct. at 2245 (quoting Fed. R. Civ. P. 23(b)(1)(A), (B)). “Rule 23(b)(1)(A) ‘takes in cases where the

party is obliged by law to treat the members of the class alike (a utility acting toward customers; a government imposing a tax), or where the party must treat all alike as a matter of practical necessity (a riparian owner using water as against downriver owners). Id, (quoting Kaplan, Continuing Work of the Civil

Committee: 1966 Amendments of the Federal Rules of Civil Procedure (I), 81 Harvard L. Rev. 356, 388 (1967)). “Rule

23(b)(1)(B) includes, for example, ‘limited fund’ cases, instances in which numerous persons make claims against a fund insufficient to satisfy all claims.” Id, (citing Advisory

Committee’s Notes on Fed. Rule Civ. Proc. 23, 28 U. S. C. App., pp. 696-697)). “Certification under this subsection constitutes

a mandatory class, from which class members may not opt out of the action ‘to pursue litigation that might prejudice other class members or the defendants.’” Clauser v. Newell Rubbermaid, Inc., Civ. A. No. 99-5753, 2000 U.S. Dist. LEXIS 10631 at *16 (E.D. Pa. 2000)(quoting Bunnion v. Consolidated Rail Corp., No. 97-4877, 1998 U.S. Dist. LEXIS 7727 at *13 (E.D. Pa. May 14, 1998) and 6 James Wm. Moore, Moore’s Federal Practice §23.40[2] (3d ed.


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1998))7. On the other hand, “Rule 23(b)(2) permits class actions for declaratory or injunctive relief where ‘the party opposing the class has acted or refused to act on grounds generally applicable to the class.’ Civil rights cases against parties charged with Id,

unlawful, class-based discrimination are prime examples.”

(quoting Advisory Committee’s Notes, 28 U. S. C. App., p.697 and Kaplan, Continuing Work, 389)). “The key to the (b)(2) class is ‘the indivisible nature of the injunctive or declaratory remedy warranted - the notion that the conduct is such that it can be enjoined or declared unlawful only as to all of the class members or as to none of them.’” Dukes, 131 S. Ct. at 2557 (quoting Nagareda, Class Certification in the Age of Aggregate Proof, 84 N. Y. U. L. Rev. 97, 132 (2009)). “In other words, Rule 23(b)(2)

applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not

authorize class certification when each individual class member would be entitled to a different injunction or declaratory

“Whereas Subsection (A) is designed to prevent prejudice to the party opposing the class, Subsection (B) is designed to prevent prejudice to the potential members of the class.” Huegel, infra, 2002 U.S. Dist. LEXIS at *14 (citing Thomas v. Smithkline Beecham Corp., 201 F.R.D. 386, 396 (E.D. Pa. 2001)). We note that Plaintiff here does not move to obtain certification under Rule 23(b)(1)(B). This is undoubtedly because she cannot make the necessary showing that prosecuting separate actions by or against individual class members poses a risk of adjudications with respect to individual class members that, practically speaking, “would be dispositive of the interests of the other members not parties to the individual adjudications or would substantially impair or impede their ability to protect their interests.” Fed. R. Civ. P. 23(b)(1)(B).



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judgment against the defendant.

Similarly, it does not authorize

class certification when each class member would be entitled to an individualized award of monetary damages.” Id. Finally, in

like fashion to Rule 23(b)(1), “(b)(2) does not require that class members be given notice and opt-out rights, presumably because it is thought (rightly or wrongly) that notice has no purpose when the class is mandatory and that depriving people of their right to sue in this manner complies with the Due Process Clause.” Id, at 2559.

In application of the foregoing general principles to the matter at hand, we first cannot find this case to be one in which separate actions by or against the individual class members poses a real risk of establishing incompatible standards of conduct for Defendants. To be sure, the Rule 23(b)(1)(A) requirement was

designed to apply to cases in which it would be impossible for the defendant to comply with conflicting outcomes, specifically with regard to injunctive relief. Panetta v. SAP America, Inc.,

Civ. A. No. 05-4511, 2006 U.S. Dist. LEXIS 17556 at *8 (E.D. Pa. April 7, 2006). Even though different results may occur as the

result of different factual scenarios such that, for example, some of the plaintiffs may prevail against the defendants in individual actions and some may not prevail, this is not a sufficient basis upon which to invoke Rule 23(b)(1)(A). Huegel

v. City of Easton, Civ. A. No. 00-5077, 2002 U.S. Dist. LEXIS


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22273 at *13 (E.D. Pa. Oct. 22, 2002).

Rather, Rule 23(b)(1)A)

only applies “to prevent situations in which different courts establish incompatible standards of conduct.” Id, at *12

(quoting Casper v. Cunard Line, Ltd., 560 F. Supp. 240, 244 (E.D. Pa. 1983)). Where there is no evidence that another cause of

action may be brought asserting an incompatible claim, certification under this subsection is inappropriate. See also,

Casper, supra, (“Rule 23(b)(1)(A) is not meant to apply where the risk of inconsistent results in individual actions is merely the possibility that the defendants will pay damages to some claimants but not to others.”) Since that is precisely the case here – there is nothing to suggest that another cause of action asserting an incompatible claim might be instituted against these defendants, we cannot find certification under Rule 23(b)(1)(A) to be appropriate in this action. We also decline certification under Fed. R. Civ. P. 23(b)(2), notwithstanding our belief that both injunctive and declaratory relief are likely appropriate remedies for all of the potential members of the proposed class. However, in view of our

earlier assessment that potential class members in this case should be afforded the opportunity to opt out and in light of the following observation by the Supreme Court in Dukes, we adhere to the belief that this case is best viewed through the lens of Rule 23(b)(3):


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... Rule 23(b)(2) applies only when a single injunction or declaratory judgment would provide relief to each member of the class. It does not authorize class certification when each individual class member would be entitled to a different injunction or declaratory judgment against the defendant. Similarly, it does not authorize class certification when each class member would be entitled to an individualized award of monetary damages. ... Given that structure [of Rule 23(b)(2)], we think it clear that individualized monetary claims belong in Rule 23(b)(3). The procedural protections attending the (b)(3) class predominance, superiority, mandatory notice, and the right to opt out - are missing from (b)(2) not because the Rule considers them unnecessary, but because it considers then unnecessary to a (b)(2) class. When a class seeks an indivisible injunction benefitting all its members at once, there is no reason to undertake a case-specific inquiry into whether class issues predominate or whether class action is a superior method of adjudicating the dispute. Predominance and superiority are self-evident. But with respect to each class member’s individualized claim for money, that is not so - which is precisely why (b)(3) requires the judge to make findings about predominance and superiority before allowing the class. ... In the context of a class action predominantly for money damages we have held that absence of notice and opt-out violates due process...(citation omitted) While we have never held that to be so where the monetary claims do not predominate, the serious possibility that it may be so provides an additional reason not to read Rule 23(b)(2) to include the monetary claims here. Id, 131 S. Ct. at 2557, 2558-2559. As the Plaintiff in the

instant action seeks not only declaratory and injunctive relief but money damages as well, we turn next to the dictates of Rule 23(b)(3). Pursuant to that subsection, class action status is proper if “the questions of law or fact common to class members predominate over any questions affecting only individual members,” such that “a class action is superior to other methods for fairly and efficiently adjudicating the controversy.” 25 The

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predominance “inquiry tests whether proposed classes are sufficiently cohesive to warrant adjudication by representation.” Amchem, 521 U.S. at 623, 117 S. Ct. at 2249. This standard is

“far more demanding” than the commonality requirement of Rule 23(a), ... demanding more than a common claim.” In re Hydrogen

Peroxide Litigation, 552 F.3d at 311 (quoting Amchem, 521 U.S. at 623; Newton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 259 F.3d 154, 187 (3d Cir. 2001)). While the plaintiff need not show

unanimity of common questions, he must demonstrate that any individual differences are of “lesser overall significance than the common issues,” and that the individualized questions of fact and law are manageable in a single class action. Marsden v.

Select Medical Corp., 246 F.R.D. 480, 488 (E.D. Pa. 2007)(quoting Barabin v. ARAMARK Corp., 210 F.R.D. 152, 161-162 (E.D. Pa. 2002) and Sanneman v. Chrysler Corp., 191 F.R.D. 441, 449 (E.D. Pa. 2000)). “Because the ‘nature of the evidence that will suffice

to resolve a question determines whether the question is common or individual,’ ... a district court must formulate some prediction as to how specific issues will play out in order to determine whether common or individual issues predominate in a given case.’” Hydrogen Peroxide, 552 F.3d at 311 (quoting Blades v. Monsanto Co., 400 F.3d 562, 566 (8th Cir. 2005) and In re New Motor Vehicles Can. Exp. Antitrust Litig., 522 F. 3d 6, 20 (1st Cir. 2008)). “If proof of the essential elements of the cause of


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action requires individual treatment, then class certification is unsuitable.” Id.; Newton, 259 F.3d at 172.

The superiority requirement in turn, requires courts “to balance, in terms of fairness and efficiency, the merits of a class action against those of ‘alternative available methods of adjudication.’” Community Bank of Northern Virginia, 418 F.3d at 309 (quoting Georgine v. Amchem Prods., Inc., 83 F.3d 610, 632 (3d Cir. 1996), aff’d, 521 U.S. 591, 117 S. Ct. 2231, 138 L. Ed. 2d 689 (1997)). A “nonexhaustive list of factors pertinent to a

court’s ‘close look’” at the superiority criteria is found in the text of Rule 23(b)(3) itself. S. Ct. at 2246. It includes: Amchem, 521 U.S. at 615-616, 117

(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the difficulties likely to be encountered in the management of a class action. Fed. R. Civ. P. 23(b)(3)(A) - (D). Finally, it has been said

that “predominance and superiority overlap in that as the number of individual issues rises, the class action devise becomes a less superior method for adjudication.“ Huegel, 2002 U.S. Dist.

LEXIS at *17-*18 (quoting Miller v. Hygrade Food Products Corp., 198 F.R.D. 638, 643 (E.D. Pa. 2001)). We find the case presently before us to be well-suited for Rule 23(b)(3) certification. To reiterate, the gravamen of 27

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Plaintiff’s complaint is that Defendants’ creation of a separate recording system in which it offered its members the option of recording mortgage assignments in lieu of recording in the public Recorders of Deeds offices was in contravention of Pennsylvania law. The result of this legal violation, according to Plaintiff,

is that the accuracy of the public records has been compromised and the counties of the Commonwealth have been deprived of the recording fees to which they would have been entitled had the assignments been properly presented for recordation. Thus,

should it be determined by the finder of fact that operation of the MERS system as alleged is violative of Title 21 of the Pennsylvania Statutes, that determination would apply with equal force in all 67 Pennsylvania counties and a fortiori, the Recorder of Deeds office in each of those counties would be entitled to a declaration of illegality, an injunction compelling the payment of lost and future assignment filing fees and to recover as damages the unpaid filing fees for those assignments previously not properly recorded. Again, the only factual

variance between the individual counties of which we can conceive is the number of unrecorded assignments and the sum charged and/or fee schedules set by each. In our judgment, the questions

of law or fact common to class members which involve liability clearly predominate over the damages questions affecting only individual members. We thus now turn to the final issue for our


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consideration: whether the class action format would, in this case, prove superior. Of course, from the standpoints of cost-effectiveness and efficiency, there can be no question but that a class action is superior. It is cheaper, more cost-effective and more efficient

by far to try one case instead of 65, to utilize the resources of one judge in one district rather than judges in courts sitting throughout the state, and to engage in written discovery, depositions and motion practice one time in lieu of multiple times. However, despite these benefits, Defendants contest Specifically, they assert that the superiority


factor cannot be met because: (1) each recorder has a strong interest in controlling his/her own recording fee litigation, as is evidenced by the Washington County lawsuit; (2) the Eastern District is an undesirable forum given that neither of the MERS defendants is located here and Pennsylvania’s quiet title rules dictate that such actions must be brought in the county in which the land is located, and (3) individual property by property examinations would be necessary to determine whether a given mortgage assignment was or was not recorded. contention in turn. In this case, there is evidence that two other counties – We address each


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Washington and Delaware8 - have filed lawsuits which mirror or are substantially similar to this one. Thus, while Defendants

are correct that there is some interest on the part of two other potential class members in controlling the prosecution of these claims, we nevertheless do not find this interest to be sufficient to outweigh the benefits inherent in the class action device. Indeed, it appears that such interest in individual

control is minimal considering that 64 of Pennsylvania’s 67 counties have taken no action with regard to the issues raised here and given the dearth of evidence on this record as to the proclivities or inclinations of any of these other counties or county Recorders of Deeds. And, as we discussed earlier in this

Memorandum Opinion, the Washington County action, while similar to this one, is not identical – that action is proceeding under the theory that U.S. Bank erroneously represented that the loans which it was packaging and selling in various residential mortgage-backed security trusts were properly perfected. It also

has not been instituted by the Recorder of Deeds - it is the County of Washington which brought suit there. Should either

This action, captioned Delaware County Pennsylvania Recorder of Deeds, by and through Thomas J. Judge Sr. in his official capacity v. MERSCORP, Inc., n/k/a MERSCORP Holdings, Inc., et. al., was filed in October, 2013 in the Court of Common Pleas of Delaware County and includes claims for violations of 21 P.S. §351 and §876 of the Restatement of Torts (Second), unjust enrichment, declaratory judgment and injunctive relief. Also named as defendants in that suit are Bank of America, Citimortgage, Credit Suisse Financial Corp., HSBC Finance Corp., Everhome Mortgage Co., JP Morgan Chase Bank, State Farm Bank, Wells Fargo Bank and Sovereign Bank. Unlike the instant suit and that filed by Washington County in its own Court of Common Pleas, the Delaware County suit was not filed as a class action.



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Plaintiff Becker in this action or the County of Washington prevail in either or both actions, all 67 counties and/or their recorders are potential beneficiaries. Moreover, should any

individual recorder desire to control their own suit, they are free to exercise their right to opt-out. For all of these

reasons, we are not persuaded by Defendants’ argument. Further, contrary to Defendants’ second claim, it appears that both MERS, Inc. and MERS Corp. maintain registered offices in this district – MERS in West Chester and MERS Corp. in Philadelphia. (See, Exhibits 3 and 4 to Pl’s Reply Memorandum in Further Support of Motion for Class Certification). And, while

Defendants are correct in their assertion that under the venue provision of the Pennsylvania Rules of Civil Procedure governing quiet title actions, Pa. R.C.P. 1062, such actions in the Pennsylvania courts “may be brought in and only in a county in which the land or a part of the land is located,” under the Federal Rules, the defense of improper venue must be raised either in the responsive pleading or by filing a motion before the responsive pleading or it may be waived. P. See, Fed. R. Civ.

12(b)(3); Breland v. ATC Vancom, Inc., 212 F.R.D. 475, 477 Insofar as Defendants only now raise this

(E.D. Pa. 2002).

argument for the first time in their brief in opposition to Plaintiff’s Motion to Certify, we do not find venue to be a barrier to superiority either.


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Defendant’s third assertion is, we find, the most compelling in that to the extent that an individual property-by-property examination of the land title and MERS system records would be necessary, it would be difficult. This difficulty, however,

would only possibly be an issue with respect to assessing damages. Again, the liability question is essentially the same:

whether Defendants were required by Pennsylvania law to record in the County Recorder of Deeds offices assignments of mortgages every time a loan was transferred/sold from one note holder to another. Thus, for purposes of assessing manageability, we find

no real difficulties or problems are likely to be encountered in the liability portion of this case. As noted, it will undoubtedly be more challenging to manage the damages portion of the case, should that point be reached. We do not believe these difficulties to be insurmountable however. For one, as Defendants point out and as Plaintiff

apparently does not dispute, in instances where there was a transfer of interest from a MERS member to an entity that was not a member, assignments were in fact recorded. Thus it seems to

this Court that the damages proceedings may well be streamlined by focusing primarily on loans made and/or transferred by and between MERS members. Furthermore, as the Third Circuit has

recognized, “the necessity for calculation of damages on an individual basis should not preclude class determination when the


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common issues which determine liability predominate.”

Chiang v.

Veneman, 385 F.3d 256, 273 (3d Cir. 2004)(citing Bogosian v. Gulf Oil Corp., 561 F.2d 434, 456 (3d Cir. 1977); Carroll v. Stettler, Civ. A. No. 10-2262, 2011 U.S. Dist. LEXIS 121171 at *13 (E.D. Pa. Oct. 19, 2011). Accordingly, we likewise conclude that

these potential difficulties are not so grave as to overcome the overall superiority of the class action device in this matter. Conclusion Based upon the foregoing discussion and for all of the reasons outlined above, this Court finds class action status to be appropriate in this matter. We therefore grant the

Plaintiff’s Motion for Class Certification and enter the annexed order.

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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA MONTGOMERY COUNTY, PENNSYLVANIA, RECORDER OF DEEDS, by and through Nancy J. Becker in her official capacity as Recorder of Deeds of Montgomery County, on its own behalf and on behalf of all others similarly situated, Plaintiff, v. MERSCORP, INC., and MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., Defendants. : : : : : : : : : : : : : : : : :



AND NOW, this


day of February, 2014, upon

consideration of Plaintiff’s Motion for Class Certification (Doc. No. 51) and Defendants’ Responses in Opposition thereto, it is hereby ORDERED that the Motion is GRANTED and the Class is hereby defined as consisting of “Each County Recorder of Deeds in Pennsylvania in his or her official capacity.” IT IS FURTHER ORDERED that Plaintiff Nancy J. Becker in her official capacity as Recorder of Deeds of Montgomery County, Pennsylvania is appointed as Class Representative and the law firms of Kohn, Swift & Graf, P.C., Lamb McErlane, PC, Cooper & Schaffer, LLC, Whitfield Bryson & Mason LLP and Cuneo Gilbert & Laduca LLP are appointed as Class Counsel.

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IT IS STILL FURTHER ORDERED that Class Counsel are DIRECTED to submit within thirty (30) days of the entry date of this Order, a proposed form of Order providing for Notice to be given to the members of the Class. BY THE COURT:

s/J. Curtis Joyner J. CURTIS JOYNER,


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Civil Action

No. 11-cv-6968-JCJ

DECLARATION OF IRV ACKELSBERG, ESQUIRE, IN SUPPORT OF AMICUS CURIAE BRIEF OF COMMUNITY LEGAL SERVICES, INC., PENNSYLVANIA LEGAL AID NETWORK AND HOUSING ALLIANCE OF PENNSYLVANIA Introduction 1. I am a licensed Pennsylvania attorney since September, 1976, and a member in good standing of the bars of the United States District Court for the Eastern District of Pennsylvania; the Third Circuit; and the United States Supreme Court. I am a partner in the Philadelphia law firm, Langer Grogan & Diver, PC. 2. I received my B.A. from Haverford College in 1972 and my J.D., magna cum laude, from Rutgers University-Camden School of Law in 1976. 3. Since 1978, I have specialized in consumer law. I practiced for 30 years with Community Legal Services (CLS) (1976-2006), the civil legal aid program serving Philadelphia, where I managed the North Philadelphia office and led the program’s consumer law work. My practice at CLS was concentrated mostly in the area of consumer debt, unfair and deceptive practices, bankruptcy and mortgage foreclosure. At CLS, I had a diverse practice which included individual case representation, class action litigation, appeals, legislative and regulatory advocacy and drafting, and extensive lecturing, teaching and writing. 4. Much of my work at CLS during the last ten years of my tenure was concentrated in addressing the explosion of subprime mortgage lending that first appeared on a large scale, around 1996, and grew exponentially until the financial collapse of 2008. This work included a focus both on the front-end of mortgage origination practices and the back-end of mortgage servicing and foreclosure practices. My work in this area was multi-faceted. I had an extensive litigation docket which included, for example, the first decision interpreting the previously untested Home Ownership Equity Protection Act, Newton v. United Companies Financial, Inc., 24 F. Supp. 2d 444 (E.D. Pa. 1998) and the Pennsylvania Superior Court decision that established the existence of equitable defenses to a foreclosure action brought to enforce a

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predatory mortgage transaction, Green Tree Consumer Discount Co. v. Newton, 909 A.2d 811 (Pa. Super. 2006). On two occasions, in 2001 and 2007, I was invited by the Banking Committee of the United States Senate to testify in hearings regarding predatory mortgage lending. In 2006 I testified as an expert in an investigation of mortgage broker fraud conducted by the Federal Reserve Board. Among the organizations that invited me to lecture on various aspects of the mortgage industry have been: the Federal Reserve Bank of Philadelphia, the Pennsylvania Housing Finance Agency, the NAACP, and the Pennsylvania Bar Institute. I also advised the Rendell Administration’s Banking Department on predatory lending issues, including conducting trainings for staff and serving on an official Advisory Committee that assisted the Department in reorganizing itself to be more responsive to abuses in the marketplace and in developing new mortgage lending rules. 5. Particularly applicable to the instant legal matter in which my opinion has been sought, my work has led me to develop expertise on a number of issues relating to the mortgage industry, including: (a) the mortgage financing system called “securitization” and the fragmentation of ownership resulting from this system; (b) the unique role of mortgage servicers in managing all aspects of a securitized mortgage; (c) the private mortgage recording system called the Mortgage Electronic Registration System, or “MERS”, that the industry participants in mortgage securitization created and how MERS operates; (d) the Pennsylvania foreclosure process; and (e) a homeowner’s right under the federal Truth in Lending Act to notice regarding the identity of the actual owner of a mortgage on his/her house. 6. I am the author of the recently published treatise on Pennsylvania foreclosure law entitled, Residential Mortgage Foreclosure: Pennsylvania Law and Practice (Bisel Co. 2012). See 7. I have received several awards recognizing my professional achievements. I was the 2005 recipient of the National Consumer Law Center’s Vern Countryman Award, awarded annually to a consumer lawyer, in recognition of “excellence and dedication in the practice of consumer law on behalf of low-income consumers.” See  The Countryman Award is the most prestigious award in my field. In 2001, I was awarded the Andrew Hamilton Award by the Public Interest Section of the Philadelphia Bar Association for my lifetime contribution to public interest law in Philadelphia. 8. matter. Opinion 9. In preparing this report, I reviewed the following documents: I am receiving no compensation for the study and testimony I am providing in this


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a. The Complaint (Doc. 1); b. The Court’s Memorandum and Order filed October 19, 2012 (Doc. 22); c. Defendants’ Motion to Dismiss Plaintiffs’ Claims to Quite Title and Memorandum of Law (Doc. No. 32); d. Plaintiff’s Memorandum in Response to Defendants’ Motion (Doc. 36); and e. Defendants’ Reply (Doc. 38). 10. Based on my training and experience and my analysis of these materials, I have reached the following conclusions: a. Pennsylvania homeowners, whose homes are subject to mortgages in which the named mortgagee, according to the public mortgage records, is the Mortgage Electronic Registration System (or, “MERS”), “as a nominee” for some named lender, have an interest at stake in this matter, namely, the interest in knowing who actually owns that mortgage. b. That interest is entirely consistent with the relief being sought by the Plaintiff in this case. I can imagine no circumstance in which the disposition of this action would, in any practical manner, impair or impede the ability of the homeowners to protect that interest. c. Not only is the relief being sought by Plaintiff consistent with the interests of homeowners, it is also consistent with federal housing policy protecting the right of homeowners to know the identity of their mortgagees. Basis for Opinion Residential Mortgage-Backed Securitization, in General 11. The original paradigm of residential mortgage lending on a mass scale was the mortgage originated by a local bank or savings and loan association that used the savings of its depositors as the capital to make the loan. The loans would sit on the books of the bank as an asset and the bank would collect payments on the loan on its own behalf. This market paradigm disappeared decades ago. 12. In the modern mortgage market, mortgages are traded as investment commodities in a secondary market known as the Residential Mortgage-Backed Securities (“RMBS”) market. 3

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The generic process of turning income flows into marketable securities is called “securitization.” RMBS first became a successful method for capitalizing the mortgage market through securitizations that were arranged and backed by government or the government-sponsored agencies (Fannie Mae and Freddie Mac). These are known as “agency” securitizations. In the 90’s, Wall Street devised competing “private label” versions of a RMBS. 13. Because of the dominant role of securitization,1 mortgages are now rarely held as assets by the entities originating the loans, and those entities that are collecting payments and otherwise managing the mortgage accounts are doing so as servicing agents for different legal holders of the loan, not on their own behalf. In a typical RBMS transaction, mortgages are purchased from an originating lender, pooled with other mortgages, and packaged by a large investment bank that divides the pooled income streams into fractional shares that are sold to investors as mortgage-backed securities. As a result of various legal requirements and bankruptcy-insulation strategies, an individual mortgage obligation being put into the pool of mortgages backing a particular securitization deal will, by necessity, go through multiple transfers of ownership. 14. In a typical RMBS transaction, an individual loan is made by an Originator, and then sold to a Sponsor or Seller. The Sponsor can be an affiliate of the Originator, or can be an independent aggregator of loans, or both. The Sponsor then sells a pool of loans to a Depositor. Again, the Depositor can be a subsidiary of the Sponsor, or an unaffiliated business partner. At some point, the pool of mortgages will then be transferred to a “Special Purpose Vehicle” (SPV, also called a “Single Purpose Entity”), an entity that has no other assets or liabilities. The reason for the transfer of the mortgage pool to this intermediate pass-through entity is to create a legally recognized “true sale” that removes the remote possibility that the mortgages might be brought back into a bankruptcy estate in the event the Originator or Sponsor were bankrupt.2 The SPV itself or a subsequent transferee of the SPV will function as the Issuer, issuing the securities


About 60% of all outstanding mortgages, 75% of all outstanding first-lien mortgages and over 90% of mortgages produced in the years immediately preceding the 2008 collapse were securitized. See Hearing: Problems in Mortgage Servicing From Modification to Foreclosure, U. S. Senate Committee on Banking, Housing, and Urban Affairs, Nov. 16, 2010 (testimony of Assoc. Prof. Adam J. Levitan, citing industry data) available at b685-c1bf-4eea-941d-cf9d5173873a&Witness_ID=2ada1da6-e7cc-4eca-99a4-03584d3748af.

By virtue of changes in 2002 to the Statement of Financial Accounting Standards, the use of intermediate SPV’s became an accounting requirement, to ensure that the mortgages could be excluded from the balance sheets of the Originator or Sponsor. 4

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backed by the pools of mortgages. Investors purchase the securities, providing the capital that works its way back down the transfer chain to the Sponsor.3 15. The individual mortgages comprising a securitized mortgage pool function as collateral in two ways. They are collateral for the individual borrower’s promise to repay the debt, and they are also collateral for the investor’s right to receive the income stream represented by its RMBS investment. For the investor, however, its collateral is not a specific mortgage or group of mortgages, but rather a fractional interest in the mortgage pool as a whole.4 Legal ownership over the pool of mortgages is placed in a named Trustee, ordinarily a large commercial bank. It is the Trustee who is nominal legal owner of the mortgage pool and the legal representative of the investors. Formally, the investors are the creditors of the trust, not the owners of the mortgages within the trust. 16. While the Trustee has nominal legal title to the mortgage loans in the pool, the Trustee’s role is, by design, entirely passive.5 The final and most important character in a securitization transaction is the Servicer. It is the Servicer that actively manages the individual mortgage accounts for the Trustee. This activity includes not only billing and collection responsibilities, but also sole responsibility over the initiation and settlement of foreclosure cases. If asked, most homeowners would identify their “lender” as being the mortgage servicing company that currently bills them every month, or perhaps the entity that first made the loan to them. Chances are neither company is their “lender” now, if by “lender” one means the entity that currently holds beneficial ownership rights in the mortgage obligation. The original lender undoubtedly sold the loan soon after making it; the current holder is a commercial bank trustee

For a similar description of the cast of characters in a securitization transaction, see Luminent Mortg. Capital, Inc. v. Merrill Lynch & Co., 2009 WL 2590087 (E.D.Pa. August 20, 2009); MBNA Ins. Corp. v. Royal Indem. Co., 519 F.Supp.2d 455 (D.Del. 2007), aff’d 321 Fed. Appx. 146 (3d Cir. 2009).

More specifically, investors hold certificates in a particular slice, or “tranche”, of the securitized trust. These tranches are organized into an ascending order of protection from loss and descending order of yield and risk. The “senior” certificate-holders are those whose investments have the highest grade and the lowest yield. They are followed by “mezzanine,” “junior” and “residual” certificate-holders. This passivity is a requirement imposed by the special tax treatment accorded to Real Estate Mortgage Investment Conduits, or “REMIC’s.” See Levitin Testimony, supra note [33], at 9 (contrasting duties of securitization trustee to that of a common law trustee with fiduciary duties); Adam J. Levitan and Tara Twomey, “Mortgage Servicing,” Yale J. Reg. 1, 32 (2011) (explaining how an RMBS is designed to ensure that taxation on the income from the mortgages is imposed only on the securities holders, not the SPV, and that the use of the REMIC structure is the most common method of avoiding double-level taxation). 5

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they have never heard of; and the mortgage company billing them is actually the servicer for the trustee. How Mortgages are Transferred and the Different Treatment of MERS and non-MERS Mortgages 17. Every mortgage obligation consists of two components: a promissory note that defines the terms of an obligation to repay a loan, and a mortgage conveyance that secures that repayment obligation. Most of the terms of the obligation—e.g., the interest rate and the amount and number of monthly payments—are contained in the note rather than the mortgage. Most modern mortgage forms expressly incorporate the separately and contemporaneously executed promissory note by reference, but do not expressly state those particular terms. Because mortgages are recorded and notes are not, a public record about a mortgage transactions consists mainly of the date of the transaction, the names of the parties involved—the lender and the property owner—and the original principal amount of the mortgage obligation, while the remaining terms remain private. 18. Because notes and mortgages are governed by two different bodies of law, the transfer of a single mortgage obligation has traditionally involved compliance with the separate rules for transferring the note and the mortgage component of the obligation. Notes are transferred in accordance with the “negotiation” requirements established by Article 3 of the Uniform Commercial Code, involving a proper endorsement and physical delivery of the note.6 Mortgage liens, on the other hand, are transferred through compliance with the rules governing the conveyance of interests in real estate. In Pennsylvania, that process involves the execution,

Under the law of negotiable instruments, once the lender accepts an executed note from the borrower—a note “maker” or “issuer” under the language of the UCC, see 13 Pa. C.S. § 3103 (definition of “maker” as “a person who signs or is identified in a note as a person undertaking to pay”)—the legal obligation to repay the loan merges into the physical note itself. 13 Pa. C.S. § 3310(b) (“if a note . . . is taken for an obligation, the obligation is suspended to the same extent the obligation would be discharged if an amount of money equal to the amount of the instrument were taken”). The contractual duty to repay the loan is thus transformed into a form of commercial paper that can be exchanged for value. The issuer’s note is “negotiable” by virtue of its being subject to transfer by the original lender to some other “holder.” Once negotiated, the borrower’s repayment obligation is owed not to the original lender, but to a subsequent “holder” of the instrument. 13 Pa. C.S. § 3201(a) (“Negotiation” means “a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes its holder.”); Manor Bldg. Corp. v. Manor Complex Associates, Ltd., 435 Pa. Super. 246,252, 645 A.2d 843, 846 (1994); Official Comment to § 3201(“A person can become holder of an instrument when the instrument is issued to that person, or the status of holder can arise as the result of an event that occurs after issuance. “Negotiation” is the term used in Article 3 to describe this post-issuance event.”) 6

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acknowledgment and recording of an instrument called an Assignment of Mortgage. Through this process, the identity of the current mortgagee remains a matter of public record. 19. However, as a result of the mortgage industry’s establishment of MERS, this system of public notice was fundamentally altered with respect to an enormous portion of the mortgage market.7 This can best be explained by way of an example. In the case of a non-MERS mortgage that is transferred into a securitized trust, there will be of record two instruments: (a) the original mortgage between the property owner and the lender and (b) an Assignment of Mortgage that names as the assignee the commercial bank serving as trustee for the securitization trust and the name of the specific trust.8 On the other hand, in the case of a mortgage that is put into the MERS system, there will be only one instrument of record, that being an original mortgage which names as the mortgagee MERS “acting as nominee” of the original lender. When the actual obligation is transferred into the trust, no Assignment of Mortgage is executed and recorded. Instead, the name of the current owner of the mortgage is supposedly noted in the private records of MERS that are accessible by MERS members but not the owner of the property subject to the mortgage. 20. Even in the case of a MERS mortgage, however, the concealment of the identity of the mortgagee will end in the event a foreclosure action is filed. Just prior to foreclosure, the servicer generally files an instrument purporting to be an Assignment of Mortgage, with MERS as the assignor and the securitization trustee as the assignee. There are several reasons why servicers believe they have to do this in order to foreclose on a delinquent mortgage. Under Pa. Rule of Civil Procedure 2002, all civil actions must be filed in the name of the real party in interest. MERS is a registration system, not an entity that holds any beneficial rights in the registered mortgages themselves, so MERS could not properly be a foreclosure plaintiff. Rule 1147(a)(1) further provides, more specifically, that foreclosure plaintiffs must allege the parties to and dates of the mortgage and any assignments and a statement of the place where the mortgage and the assignments are recorded. As a result of these two rules, the usual practice in


According to the separate Declaration of Joan Decker, the Philadelphia Records Commissioner, 129,932 mortgages in the City of Philadelphia alone have been lodged in the name of MERS as mortgagee.

Where the securities issued by the trust are publicly traded, much information about the trust will also be publicly filed. In such a case, most of the applicable securitization documents should be registered with the Securities and Exchange Commission and available on its website, The SEC site uses a search engine named “EDGAR,” an acronym for “the Electronic Data Gathering, Analysis, and Retrieval” system. EDGAR can be accessed by selecting “Search for Company Filings” on the site. These documents include a Prospectus Supplement and a Pooling and Servicing Agreement which will identify, among other things, all the various parties to the securitization transaction. 7

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the case of MERS mortgage is for the servicer, or the law firm filing the foreclosure action for the servicer, to record a pre-complaint Assignment of Mortgage.9 21. The result of these foreclosure-related practices is that homeowners with MERS mortgages who are in foreclosure will be notified of the identity of the actual owner of their mortgage, but homeowners who are not in foreclosure will be unable to determine, from the official county property records, who owns their mortgage. Homeowners’ Interest and Right to Learn the Identity of their Mortgagee 22. A property owner has an interest in knowing the identity of an entity that holds an interest in his or her property. In the event the owner wants to pay off or refinance that mortgage, he/she needs to pay and make a demand for satisfaction from the proper party. Thus, when a lender sells and transfers a mortgage sometime after making a loan to a homeowner, the homeowner has an interest in knowing the identity of the transferee. 23. This interest in knowing the identity of the current mortgagee is not, as suggested by Defendants in their Reply Brief (at 13), a matter of “idle speculation.” On the contrary, it is an interest recognized and enforced by federal law. Mortgage servicers are obligated under the Truth in Lending Act (TILA) to identify the beneficial owner of the mortgage upon a mortgagor’s written request, see 15 U.S.C. § 1641(f)(2), and any failure to do so subjects them to a TILA action for $4,000 in statutory damages and attorney’s fees. 15 U.S.C. § 1640(a). More recent amendments to TILA have supplemented this duty of servicing agents to disclose the identity of their principals by creating an enforceable duty of a mortgage assignee to disclose its acquisition directly to the homeowner at the time of the assignment. The Helping Families Save Their Homes Act of 200910 amended TILA to require notification to a mortgagor whenever a mortgage is transferred. See 15 U.S.C. §1641(g)(1). The assignee—not the servicer—now must I refer to these as “purported” assignments because there is substantial doubt about the legal character of such instruments. Since MERS holds no beneficial interest in the mortgage, it is not clear what such an “assignment” from MERS could mean under Pennsylvania conveyancing law. There are no Pennsylvania cases specifically discussing how a mortgagee of record that holds no beneficial interest in the real estate, and is, instead a “nominee” for a lender or the lender’s assigns, can convey an interest in property. Oother state supreme courts have suggested that putting the mortgage into the name of MERS while the note is separately transferred to a new beneficial owner may render the mortgage unenforceable in a foreclosure action. See, e.g., Landmark Nat. Bank v. Kessler, 216 P.3d 158 (Kan. 2009). The legal significance of such “assignments” appear even more questionable when, as has often been happening, a lawyer from the foreclosure firm executes the mortgage as a so-called officer of MERS, meaning that counsel for the so-called “assignee” is executing the supposed conveyance on behalf of the “assignor.”
10 9

Act of May 20, 2009, Pub. L. 111-22. 8

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notify the homeowner in writing within 30 days of the transfer of: its name, address and telephone number, the date of the transfer and the location of any recorded assignment.11 24. Under these provisions of federal law, if a homeowner with a MERS mortgage were to submit a written request to his/her servicer, the servicer would be required to disclose the name of the actual beneficial owner of the mortgage, presumably, a commercial bank serving a trustee of a specific securitization trust. If, in the case of an intended foreclosure, MERS were to “assign” the mortgage by filing an Assignment of Mortgage to the beneficial owner, that act would trigger a duty on the part of MERS to make the required disclosure to the homeowner. 25. With regard to homeowners who are not in foreclosure, and whose mortgages are not assigned by their current owners, they will remain ignorant of the identity of their mortgagee, unless they specifically request that information from their servicer. It is that group of homeowners who stand to benefit from this litigation, because, if MERS is required to file assignments pertaining to the original transfer of the mortgage to the current owner (presumably, a securitization trustee), they presumably will be provided notice pursuant to 15 U.S.C. § 1641(g)(1). No Homeowner Interest Can Be Impaired or Impeded by this Action 26. A disposition of this action will have one of two results, either requiring or not requiring MERS to execute and record assignments to the actual beneficial owners of Pennsylvania mortgages. While the former case would provide a real benefit to many owners of properties subject to MERS mortgages, in neither case would the interests of such owners be impaired or impeded in any way. 27. If Defendants are successful in defending the action and MERS is not required to execute and record assignments in favor of the actual mortgagees, then homeowners with MERS mortgages will be in the same position they are now, i.e., entitled to demand the identity of their mortagees by placing a written demand on their servicer pursuant to 15 U.S.C. § 1641(f)(2); and entitled to receive notice of any future assignments pursuant to 11 U.S.C. § 1641(g)(1). 28. If, on the other hand, Plaintiff is successful and obtains an order requiring MERS to execute and record assignments, then the owners of such properties will obtain notice when MERS complies with its obligations under 15 U.S.C. § 1641(g)(1). As explained above, the only Pennsylvania homeowners who do not know the identity of their actual mortgagee are those (a)

15 U.S.C. §1641(g)(1)(C) and (E). The rule also applies to transfers occurring as the result of a merger, acquisition or reorganization, 12 C.F.R. § 226.39(a)(1), but does not apply to temporary, intermediate holders of the mortgage. 12 C.F.R. § 226.39(c)(1). The rule applies to all transfers occurring on or after the enactment date, May 20, 2009. 9

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whose mortgages were put in the name of MERS as “nominee” for a lender; (b) who have not affirmatively asked their servicer for the identity of the actual mortgagee, and (c) who have not been defendants in a foreclosure action. Property owners in this group stand to benefit by Plaintiff’s action, but if Plaintiff loses, they will be in no worse legal position than they are now. 29. Requiring homeowners to appear as parties in this case would not bring before the Court any relevant interest that is not being currently represented. While the Plaintiff’s interest is largely a monetary one, based on the recording fees that MERS has failed to pay, Plaintiff’s interest is also that of the statutorily endowed caretaker of the public mortgage records. Her exercise of her duty to enforce the mortgage industry’s obligation to record mortgages is completely consistent with the interest of property owners in knowing who holds mortgages against them. Such an interest is being furthered by this action, not impaired nor impeded.

Dated: March 4, 2013

/s/ Irv Ackelsberg