IN THE MATTER OF MERSCORP v. ROMAINE

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Docket Number

2001-04792

Attorney(S)

Hiscock Barclay, LLP, Buffalo, N.Y. (Charles C. Martorana of counsel), for appellants. Cahn Wishod Knauer, LLP, Melville, N.Y. (Richard C. Cahn and Brian T. Egan of counsel), for respondents. Ann M. Kappler, Washington, D.C., for Federal National Mortgage Association, and Howard Lindenberg, McLean, Va., for Federal Home Loan Mortgage Corporation, amicus curiae (one brief filed).

Judges

GOLDSTEIN, J., concurs in the result, with the following memorandum:

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Smart Summary

Factual and Procedural Background

The appellants, Merscorp, Inc. and its subsidiary Mortgage Electronic Registration Systems, Inc. (MERS), operate a national electronic registration system for residential mortgages and related instruments, known as the MERS System. Lenders subscribing to this system designate MERS as their nominee or the mortgagee of record for recording mortgage-related instruments in the counties where the real property is located. By May 2001, MERS had recorded over four million such instruments nationwide, including approximately 16,000 in Suffolk County, New York.

On April 5, 2001, the New York Attorney-General issued an informal opinion advising the Nassau County Clerk to record MERS Instruments but to index them under the actual lenders' names rather than MERS as mortgagee. Following this, the Suffolk County Clerk announced that he would no longer accept MERS Instruments listing MERS as mortgagee or nominee unless MERS was the actual mortgagee.

In response, Merscorp and MERS initiated a hybrid proceeding pursuant to CPLR article 78, seeking mandamus relief to compel the Suffolk County Clerk to record and index MERS Instruments naming MERS as mortgagee. They also sought a judgment declaring such instruments acceptable for recording. Concurrently, they moved for a preliminary injunction to compel the Clerk to record and index MERS Instruments accordingly. The Supreme Court, Suffolk County, initially granted a temporary restraining order but later denied the preliminary injunction. The appellants appealed the denial by permission.

Legal Issues Presented

Whether the Suffolk County Clerk has a statutory ministerial duty to record and index mortgage instruments naming MERS as the mortgagee or nominee of record, provided they are duly acknowledged and accompanied by the proper fee.
Whether the petitioners demonstrated a likelihood of success on the merits to justify a preliminary injunction compelling the Clerk to record and index MERS Instruments.
Whether denial of the preliminary injunction would cause irreparable harm to Merscorp and MERS.
Whether the balance of equities favors granting the preliminary injunction pending determination of the merits.

Arguments of the Parties

Appellants' Arguments

MERS operates a nationwide electronic system for registering mortgages, and the Suffolk County Clerk is obligated under New York Real Property Law and County Law to record and index MERS Instruments when properly presented.
The Clerk’s refusal to record and index these instruments listing MERS as mortgagee or nominee is improper and contrary to statutory mandates.
They face irreparable harm to their business operations, the mortgage lending industry, and the public interest if the injunction is denied.
The statutory indexing requirements under Real Property Law § 316-a are mandatory, imposing a ministerial duty on the Clerk to index MERS Instruments as presented.

Respondents' Arguments

The Suffolk County Clerk contended that he does not have a duty to record or index instruments listing MERS as mortgagee or nominee unless MERS is the actual mortgagee.
The Clerk relied in part on the Attorney-General’s informal opinion advising indexing under the actual lender’s name rather than MERS.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Doe v. Axelrod, 73 N.Y.2d 748, 750	Standard of review for grant or denial of preliminary injunction lies within the court’s discretion.	Confirmed that the Supreme Court’s discretion must be exercised considering likelihood of success, irreparable harm, and balance of equities.
W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 517	Factors for injunctive relief: likelihood of success, irreparable harm, and equities.	Guided the court’s evaluation of the preliminary injunction factors.
Clarion Assocs. v. D.J. Colby Co., 276 A.D.2d 461	Application of injunctive relief standards and irreparable harm.	Supported finding irreparable harm to MERS and the mortgage industry without injunction.
Klostermann v. Cuomo, 61 N.Y.2d 525, 539	Ministerial duty of public officials to perform statutory duties; likelihood of success on mandamus claim.	Established that the Suffolk County Clerk has a ministerial duty to record and index properly submitted instruments, supporting likelihood of success.
People ex rel. Frost v. Woodbury, 213 N.Y. 51	Statutory duty of clerks to record properly acknowledged conveyances.	Supported the ministerial nature of the Clerk’s duty to record MERS Instruments.
People ex rel. Title Guar. Trust Co. v. Grifenhagen, 209 N.Y. 569	Clarification of recording duties under Real Property Law.	Reinforced the Clerk’s obligation to record instruments meeting statutory requirements.
Matter of Westminster Heights Co. v. Delany, 107 App. Div. 577, affd 185 N.Y. 539	Ministerial recording duties of county clerks.	Supported the ministerial duty to record and index conveyances.
Putnam v. Stewart, 97 N.Y. 411	Recording statutes and clerks’ duties.	Further supported the ministerial nature of recording duties.
McLaughlin, Piven, Vogel, Inc. v. W.L. Nolan Co., 114 A.D.2d 165, 174	Irreparable harm standard for injunctive relief.	Supported finding irreparable harm to MERS absent injunction.
Moody v. Filipowski, 146 A.D.2d 675, 678	Granting injunctions to maintain status quo pending merits determination.	Supported granting the preliminary injunction to maintain status quo.
Incorporated Vil. of Babylon v. Anthony's Water Cafe, 137 A.D.2d 791, 792	Status quo and injunctive relief principles.	Supported injunction to preserve status quo pending resolution.
Tucker v. Toia, 54 A.D.2d 322, 326	Use of injunctions in cases of first impression to maintain status quo.	Supported injunction given novel legal issues presented.
Melvin v. Union Coll., 195 A.D.2d 447, 448	Consideration of irreparable harm and equities in injunction analysis.	Referenced by concurring judge to emphasize balancing factors beyond likelihood of success.
Time Sq. Books v. City of Rochester, 223 A.D.2d 270, 278	Appropriateness of injunction to maintain status quo pending legal determination.	Quoted by concurring judge to justify injunction despite doubts on merits.
State of New York v. City of New York, 275 A.D.2d 740	Injunctions to maintain status quo.	Referenced by concurring judge in support of injunction.
Sau Thi Ma v. Xuan T. Lien, 198 A.D.2d 186	Injunction standards and equities balancing.	Referenced by concurring judge to support injunction.

Court's Reasoning and Analysis

The court began by recognizing that the decision to grant or deny a preliminary injunction is within the Supreme Court's sound discretion, which must be exercised by considering (1) the likelihood of success on the merits, (2) the risk of irreparable harm if the injunction is denied, and (3) the balance of equities.

The court found that the Supreme Court below failed to make specific findings on these factors and thus improvidently exercised its discretion in denying the preliminary injunction.

On the merits, the court held that Merscorp and MERS demonstrated a reasonable probability of success on their mandamus claim. The Suffolk County Clerk’s duty to record duly acknowledged instruments accompanied by the proper fee is ministerial under Real Property Law §§ 290, 291 and County Law § 525. The Clerk cannot refuse to record instruments that meet these statutory prerequisites.

Regarding indexing, the court analyzed Real Property Law § 316-a, which mandates the Suffolk County Clerk to maintain indexes containing specific information about recorded instruments. This language is mandatory, not permissive, thus imposing a ministerial duty to index MERS Instruments as presented.

Furthermore, the court found that MERS established irreparable harm to its business and the mortgage industry if the injunction were denied, given the volume of instruments previously recorded and the public interest involved. The statute provides mechanisms to correct indexing errors, mitigating concerns about indexing under MERS’s name.

Given these factors, the court concluded that the preliminary injunction was warranted to maintain the status quo pending a full determination on the merits. The concurring justice agreed with the injunction but expressed reservations about the likelihood of success, emphasizing the importance of irreparable harm and equities in the analysis.

Holding and Implications

The court REVERSED the order denying the preliminary injunction and GRANTED the motion for a preliminary injunction pending the Supreme Court's determination of the hybrid proceeding and action on the merits.

This decision compels the Suffolk County Clerk to record and index mortgage instruments naming MERS as mortgagee or nominee, provided they meet statutory requirements. The ruling preserves the status quo, preventing potential harm to MERS and the mortgage lending industry while the underlying legal issues are resolved. No new legal precedent was established beyond the application of existing principles regarding ministerial duties and injunctive relief.

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IN THE MATTER OF MERSCORP, INC., ET AL., appellants, v. EDWARD P. ROMAINE, ETC., ET AL., respondents.

DECISION ORDER

ORDERED that the order is reversed, without costs or disbursements, and the motion for a preliminary injunction is granted pending the Supreme Court's determination of the hybrid proceeding and action on the merits.

The petitioners, Merscorp, Inc. (hereinafter Merscorp), and its subsidiary, Mortgage Electronic Registration Systems, Inc. (hereinafter MERS), operate a national electronic registration system (hereinafter the MERS System) for residential mortgages and related instruments (hereinafter MERS Instruments). In essence, lenders who subscribe to the MERS System (hereinafter MERS Members) designate MERS as their nominee or the "mortgagee of record" for the purpose of recording MERS Instruments in the county where the subject real property is located. The MERS Instruments are registered in a central database, which tracks all future transfers of the beneficial ownership interests and servicing rights among MERS Members. As of May 2001, the MERS System had recorded more than four million MERS Instruments in more than 3,000 counties in all 50 states, including more than 16,000 MERS Instruments in Suffolk County.

On April 5, 2001, the Attorney-General issued Informal Opinion No. 2001-2 in response to two questions posed by the Nassau County Clerk regarding the latter's obligation to record and index MERS Instruments. Although the Attorney-General concluded that the Nassau County Clerk had a statutory duty under Real Property Law § 291 to record MERS Instruments if they were duly acknowledged and accompanied by the proper fee, he advised the Nassau County Clerk to list the MERS Instruments in the County's alphabetical indexes under the names of the actual lenders. Based in part on the Attorney-General's Informal Opinion, the Suffolk County Clerk announced that as of May 1, 2001, he would no longer accept MERS Instruments which listed MERS as the mortgagee or nominee of record unless MERS was, in fact, the actual mortgagee.

Simultaneously with commencing this hybrid proceeding and action, Merscorp and MERS moved, inter alia, for a preliminary injunction to compel the Suffolk County Clerk to record MERS Instruments and list MERS as the mortgagee in the County's alphabetical mortgagee-mortgagor indexes for recorded conveyances. Although the Supreme Court, Suffolk County (Bivona, J.), granted the request of Merscorp and MERS for a temporary restraining order on May 2, 2001, the same court (Catterson, J.), subsequently denied their request for a preliminary injunction on May 22, 2001.

It is well established that the decision to grant or deny a preliminary injunction lies within the sound discretion of the Supreme Court (see Doe v. Axelrod, 73 N.Y.2d 748, 750). In exercising that discretion, however, the Supreme Court must consider several factors, including whether the moving party has established (1) a likelihood of success on the merits, (2) irreparable harm if the injunction is denied, and (3) a balance of the equities in favor of the injunction (see CPLR 6301, 6312[a]; W.T. Grant Co. v. Srogi, 52 N.Y.2d 496, 517; Clarion Assocs. v. D.J. Colby Co., 276 A.D.2d 461). Upon our review of the record, we find that the Supreme Court failed to set forth specific findings with respect to the tripartite test for injunctive relief and improvidently exercised its discretion in denying the motion for preliminary injunctive relief.

Merscorp and MERS demonstrated a reasonable probability of success on the merits of its claim for a writ of mandamus to compel the Suffolk County Clerk to record MERS Instruments (see Klostermann v. Cuomo, 61 N.Y.2d 525, 539). Contrary to the contention of the Suffolk County Clerk, he has a statutory duty that is ministerial in nature to record a written conveyance if it is duly acknowledged and accompanied by the proper fee (see Real Property Law § 290, § 291; County Law § 525). Accordingly, the Clerk does not have the authority to refuse to record a conveyance which satisfies the narrowly-drawn prerequisites set forth in the recording statute (see People ex rel. Frost v. Woodbury, 213 N.Y. 51; People ex rel. Title Guar. Trust Co. v. Grifenhagen, 209 N.Y. 569; Matter of Westminster Heights Co. v. Delany, 107 App. Div. 577, affd 185 N.Y. 539; Putnam v. Stewart, 97 N.Y. 411).

This court notes that the Suffolk County index is governed exclusively by Real Property Law § 316-a. Real Property Law § 316-a(1) provides that the Suffolk County Clerk shall record and index "[e]very instrument affecting real estate or chattels real, situated in the county of Suffolk * * * which shall have been recorded in the office of the [C]lerk of said county * * * pursuant to the provisions of this act" (emphasis supplied). Pursuant to Real Property Law § 316-a(2), the Suffolk County Clerk must maintain the indexes so they "contain the date of recording of each instrument, the names of the parties to each instrument and the liber and page of the record thereof and shall be substantially the forms of the schedules hereto annexed" (emphasis supplied; see also Real Property Law § 316-a).

Therefore, in light of Real Property Law § 316-a, Merscorp and MERS also demonstrated a reasonable probability of success on the merits of their claim to compel the Suffolk County Clerk to perform his ministerial duty to index MERS Instruments as the language of Real Property Law § 316-a is mandatory and not permissive (see Klostermann v. Cuomo, supra at 539).

Moreover, to the extent that the Suffolk County Clerk has recorded approximately 16,000 MERS Instruments before May 1, 2001, MERS established irreparable harm to its business operation, the mortgage lending industry, and the general public, in the absence of a preliminary injunction compelling the Suffolk County Clerk to record and index MERS Instruments (see Clarion Assocs. v. D.J. Colby Co., supra; McLaughlin, Piven, Vogel, Inc. v. W.L. Nolan Co., 114 A.D.2d 165, 174), particularly since Real Property Law § 316-a(8),(9), and (10) sets forth a mechanism for correcting any mistakes in the indexes.

Under these circumstances, a preliminary injunction should be granted to maintain the status quo while the legal issues are determined in a deliberate and judicious manner (see Moody v. Filipowski, 146 A.D.2d 675, 678; Incorporated Vil. of Babylon v. Anthony's Water Cafe, 137 A.D.2d 791, 792; Tucker v. Toia, 54 A.D.2d 322, 326).

S. MILLER, J.P., KRAUSMAN and COZIER, JJ., concur.

GOLDSTEIN, J., concurs in the result, with the following memorandum:

Although I do not necessarily agree with my colleagues that there is a likelihood of success on the merits, I nevertheless concur in granting a preliminary injunction, as the Supreme Court failed to take into consideration and address the other factors which must be taken into account, namely, irreparable harm to the movant absent the granting of a preliminary injunction, and a balancing of the equities (see Melvin v. Union Coll., 195 A.D.2d 447, 448). Where, as here, the case involves issues of first impression in the courts, it is appropriate to grant a preliminary injunction, "`to hold the parties in status quo while the legal issues are determined in a deliberate and judicious manner'" (Time Sq. Books v. City of Rochester, 223 A.D.2d 270, 278, quoting Tucker v. Toia, 54 A.D.2d 322, 326; State of New York v. City of New York, 275 A.D.2d 740; Sau Thi Ma v. Xuan T. Lien, 198 A.D.2d 186).