State ex rel. Flaiz v. Merscorp, Inc. , 95 N.E.3d 614 ( 2017 )

[Cite as State ex rel. Flaiz v. Merscorp, Inc., 2017-Ohio-7126.]
IN THE COURT OF APPEALS
ELEVENTH APPELLATE DISTRICT
GEAUGA COUNTY, OHIO
STATE OF OHIO ex rel. JAMES R. FLAIZ, : OPINION
PROSECUTING ATTORNEY OF
GEAUGA COUNTY, OHIO, et al., :
CASE NO. 2016-G-0079
Plaintiffs-Appellants, :
- vs - :
MERSCORP, INC., et al., :
Defendants-Appellees. :
Civil Appeal from the Geauga County Court of Common Pleas, Case No. 11 M
001087.
Judgment: Affirmed.
James R. Flaiz, Geauga County Prosecutor; Bridey Matheney and Katherine A. Jacob,
Assistant Prosecutors, Courthouse Annex, 231 Main Street, Suite 3A, Chardon, OH
44024 (For Plaintiff-Appellant, James R. Flaiz, Prosecuting Attorney of Geauga
County, Ohio).
Jeffrey S. Goldenberg, Goldenberg Schneider, LPA, 1 West Fourth Street, 18th Floor,
Cincinnati, OH 45202; Christian A. Jenkins, Minnillo & Jenkins Co., LPA, 2712
Observatory Avenue, Cincinnati, OH 45208; and Patrick J. Perotti, Dworken &
Bernstein Co., L.P.A., 60 South Park Place, Painesville, OH 44077 (For Plaintiff-
Appellant, Jessica Little, Prosecuting Attorney of Brown County, Ohio).
Jeremy Gilman and Kari B. Consiglio, Benesch, Friedlander, Coplan & Aronoff, LLP,
200 Public Square, #2300, Cleveland, OH 44114; and Robert M. Brochin, Morgan,
Lewis & Bockius, LLP, 200 South Biscayne Boulevard, Suite 5300, Miami, FL 33131
(For Defendants-Appellees, Merscorp, Inc., and Mortgage Electronic Registration
System, Inc.).
Nelson M. Reid and Daniel C. Gibson, Bricker & Eckler, L.L.P., 100 South Third Street,
Columbus, OH 43215; and Mary Beth Hogan, Debevoise & Plimpton, LLP, 919 Third
Avenue, New York, NY 10022 (For Defendant-Appellee, JP Morgan Chase Bank,
N.A.).
Dale H. Markowitz and Todd C. Hicks, Thrasher, Dinsmore & Dolan, 100 Seventh
Avenue, #150, Chardon, OH 44024 (For Defendant-Appellee, Home Savings & Loan
of Youngstown).
Thomas M. Hefferon and Joseph F. Yenouskas, Goodwin Procter, 901 New York
Avenue, N.W., Washington, DC 20001; and Bryan T. Kostura and Barbara F. Yaksic,
McGlinchey Stafford, PLLC, 25550 Chagrin Boulevard, Suite 406, Cleveland, OH
44122 (For Defendants-Appellees, Bank of America Corporation; Bank of America,
N.A., Individually and as Successor-By-Merger to Lasalle Bank National Association;
CCO Mortgage Corporation; RBS Citizens, N.A.; RBS Securities, Inc.; and Everbank).
Amanda Martinsek and Marquettes D. Robinson, Thacker Robinson Zinz, LPA, 2330
One Cleveland Center, 1375 East Ninth Street, Cleveland, OH 44114; and Thomas
Panoff and Lucia Nale, Mayer Brown, LLP, 71 South Wacker Drive, Chicago, IL 60606
(For Defendants-Appellees, Citigroup, Inc.; Citibank, N.A.; and Citimortgage, Inc.,
Individually and as Successor-By-Merger to Principal Residential Mortgage, Inc.).
Hugh E. McKay, Porter, Wright, Morris & Arthur LLP, 950 Main Ave., Suite 500,
Cleveland, OH 44113 (For Defendant-Appellee, Deutsche Bank National Trust
Company).
Daniel R. Warren and Brett A. Wall, Baker & Hostetler, L.L.P., 3200 PNC Center, 1900
East Ninth Street, Cleveland, OH 44114; and Patrick T. Lewis, Baker & Hostetler,
L.L.P., 3200 National City Center, 1900 East Ninth Street, Cleveland, OH 44114 (For
Defendants-Appellees, Fifth Third Bank; The Huntington National Bank, N.A.; and
Keybank National Association).
Thomas J. Lee, Stephen M. O’Bryan and William S. Dornette, Taft, Stettinius &
Hollister, L.L.P., 3500 BP Tower, 200 Public Square, Cleveland, OH 44114; and R.
Bruce Allensworth, Brian M. Forbes and Ryan Tosi, K&L Gates, LLP, State Street
Financial Center, One Lincoln Street, Boston, MA 02111 (For Defendants-Appellees,
Goldman Sachs Mortgage Company and GS Mortgage Securities Corp.).
David A. Wallace, Carpenter Lipps & Leland, LLP, 280 Plaza, Suite 1300, 280 North
High Street, Columbus, OH 43215; and Phillip R. Perdew, Locke Lord LLP, 111 South
Wacker Drive, Chicago, IL 60606 (For Defendants-Appellees, GMAC Mortgage LLC
and U.S. Bank National Association).
William D. Kloss, Jr., and Marcel C. Duhamel, Vorys, Sater, Seymour and Pease,
L.L.P., 200 Public Square, Ste. 1400, Cleveland, OH 44114 (For Defendant-Appellee,
Corinthian Mortgage Corporation).
Joseph A. Castrodale, Benesch Friedlander Coplan & Arnoff, LLP, 200 Public Square,
Suite 2300, Cleveland, OH 44114(For Defendant-Appellee, HSBC Bank, U.S.A., N.A.).
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Anthony J. Coyne and Michael P. Quinlan, Mansour, Gavin, Gerlack & Manos Co.,
L.P.A., 1001 Lakeside Ave., Suite 1400, Cleveland, OH 44114; and Michael H.
Carpenter, Katheryn M. Lloyd and Tyler K. Ibom, Carpenter Lipps & Leland, LLP, 280
Plaza, Suite 1300, 280 North High Street, Columbus, OH 43215 (For Defendant-
Appellee, Nationwide Advantage Mortgage Company).
Bryan T. Kostura and Barbara F. Yaksic, McGlinchey Stafford, PLLC, 25550 Chagrin
Boulevard, Suite 406, Cleveland, OH 44122 (For Defendants-Appellees, Suntrust
Mortgage, Inc., and Everhome Mortgage Company).
Stephen D. Jones, Roetzel & Andress, 155 East Broad Street, 12th Floor, Columbus,
OH 43215 (For Defendant-Appellee, United Guaranty Corporation).
Scott A. King and Terry W. Posey, Jr., Thompson Hine, LLP, Austin Landing 1, 10050
Innovation Drive, Suite 400, Dayton, OH 45342 (For Defendant-Appellee, Wells Fargo
Bank, N.A., Individually and as Successor-By-Merger to Norwest Bank, N.A. and Wells
Fargo Bank of Minnesota, N.A.).
CYNTHIA WESTCOTT RICE, P.J.
{¶1} Appellants, James R. Flaiz, et al., appeal from the judgment of the
Geauga County Court of Common Pleas dismissing their complaint, filed against
appellees, MERSCORP, Inc., et al., for failure to state a claim upon which relief can be
granted. At issue is whether appellants’ complaint was sufficient to state a claim for
damages in unpaid filing fees due to appellees’ failure to record numerous mortgages
and mortgage assignments in the county recorder’s official records where, appellants
maintain, Ohio imposes a statutory obligation on mortgagees and assignees to do so.
For the reasons discussed in this opinion, we affirm the judgment of the trial court, but
for reasons other than those advanced by the trial court.
{¶2} On October 13, 2011, Geauga County, Ohio and Brown County, Ohio filed
suit against appellees, MERSCORP, Inc., Mortgage Electronic Registration System, Inc.
(collectively “MERS,” a national electronic registry system for mortgage loans), and
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numerous banks and mortgage companies. The actions were brought under Civ.R. 23
as a class action on behalf of Ohio’s 88 counties, alleging appellees violated Ohio law
by failing to record assignments in Ohio county recorders’ offices when they assigned
mortgages as part of their securitization process, thereby avoiding Ohio’s alleged
mandatory recording statutes. Appellants asserted that appellees’ actions deprived
Ohioans of the benefit of a complete and accurate record of title on the subject
properties and, by implication, allowed them to avoid the costs associated with the
purportedly mandatory filing statutes.
{¶3} The Brown County case was ultimately dismissed and Geauga County
amended its compliant to add Brown County as a plaintiff in the underlying matter.
Appellants later filed their second amended class action complaint, alleging appellees
violated Ohio statutes mandating that mortgages and mortgage assignments be
recorded pursuant to R.C. 5301.25 and R.C. 5301.32. The second amended complaint
additionally stated claims for unjust enrichment, civil conspiracy, and public nuisance.
{¶4} In the second amended complaint, appellants alleged that appellees
established MERS, a private registry, in order to save money and generate rapid
mortgage-backed securities by avoiding public recordation. Appellants asserted MERS
members are approximately 5,600 banks and mortgage companies who originate
mortgages and participate in the securitization process. They claimed MERS does not
originate, assign, service, or invest in mortgage loans. Instead, they allege MERS is a
private recording system through which its members originate mortgages and keep
track of the assignments between various entities involved in the securitization process.
Appellants contended MERS members designate MERS as the mortgagee, nominee,
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beneficiary on the mortgages they originate, or by having members record an
assignment of their mortgage to MERS, even though MERS is not the actual owner of
the mortgage. MERS members then assign their mortgages to other MERS members
during the securitization process by preparing and executing actual assignments;
according to appellants, MERS affords appellees the ability to continue this process
without utilizing Ohio’s recording laws. Appellants alleged that appellees’ use of MERS
has directly caused public land records to be incomplete and inaccurate and has
permitted appellees to avoid paying the requisite filing fees.
{¶5} On November 2, 2012, appellees jointly moved the trial court to dismiss
appellants’ second amended complaint. In their motion, appellees asserted the trial
court should dismiss appellants’ complaint because the Ohio General Assembly did not
create an express private cause of action to enforce statutory provisions concerning
mortgage assignments. Appellees further argued the complaint should be dismissed,
as a matter of law, because the relevant statutes do not create an obligation to file the
instruments in question; finally, appellees argued each of appellants’ individual causes
of action failed to state a claim upon which relief could be granted.
{¶6} Appellants opposed the motion, arguing they had standing and a right to
pursue their claims, pursuant to R.C. 309.12, which authorizes a prosecuting attorney to
file suit when “money is due the county.” They further claimed they were entitled to
relief because the recording statutes at issue, R.C. 5301.25 and R.C. 5301.32,
mandate, by use of the term “shall,” that all mortgages and assignments be recorded in
the county recorder’s office. Finally, they maintained they had alleged sufficient facts to
state claims upon which relief could be premised.
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{¶7} Appellees filed a reply to appellants’ memorandum in opposition, asserting
R.C. 309.12 was insufficient to create a private cause of action under the relevant
recording statutes because it applies only when there is a fixed and settled monetary
obligation owed the county. Appellees argued that because they had no statutory
obligation to file the instruments with the recorder’s office, any money allegedly owed
was potential and not a settled obligation or liability.
{¶8} On May 17, 2016, the trial court issued its judgment granting appellees’
motion to dismiss. In rendering its decision, the court analyzed the language of both
R.C. 5301.25 and R.C. 5301.32. The former provides, in relevant part:
{¶9} (A) All deeds, land contracts referred to in division (A)(21) of
section 317.08 of the Revised Code, and instruments of writing
properly executed for the conveyance or encumbrance of lands,
tenements, or hereditaments, other than as provided in division (C)
of this section and section 5301.23 of the Revised Code, shall be
recorded in the office of the county recorder of the county in which
the premises are situated. Until so recorded or filed for record, they
are fraudulent insofar as they relate to a subsequent bona fide
purchaser having, at the time of purchase, no knowledge of the
existence of that former deed, land contract, or instrument.
(Emphasis added.)
{¶10} R.C. 5301.32 provides, in relevant part:
{¶11} A mortgage may be assigned or partially released by a separate
instrument of assignment or partial release, acknowledged as
provided by section 5301.01 of the Revised Code. The separate
instrument of assignment or partial release shall be recorded in the
county recorder’s official records. The county recorder shall be
entitled to charge the fee for that recording as provided by section
317.32 of the Revised Code for recording deeds. (Emphasis
added.)
{¶12} The trial court acknowledged that the foregoing statutes utilized the term
“shall,” typically denoting a mandatory obligation. In this situation, however, the court
observed the recording statutes are permissive because they merely provide a
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mechanism by which property owners, mortgagors and mortgagees, as well as
assignors and assignees may record deeds, mortgages, and assignments to establish
priority of lien interests. The court maintained that had the General Assembly intended
to impose a mandatory duty to record mortgages and assignments, it was required to
state (1) who must record the mortgage or assignment; and (2) when the instruments
must be recorded. Because neither statute prescribed these conditions and because
neither statute imposes a penalty upon an individual who fails to comply, the court
concluded they cannot impose a duty to record on a mortgagor/mortgagee or
assignor/assignee.
{¶13} The trial court also emphasized:
{¶14} Mortgagees and assignees have very strong reasons to record
mortgages and mortgage assignments; the recording of those
instruments provides notice and establishes at least the
presumption of priority. It would seem that only a foolhardy
mortgage assignee would choose not to record a mortgage
assignment with the County Recorder and run the risk of another
entity filing a subsequent mortgage assignment and claiming
priority. And yet, that is exactly what the Defendants have chosen
to do with the MERS system. Without giving too much credit to
financial institutions that have been substantially responsible for the
recent recession, those financial institutions have chosen the
benefits of the MERS system over the protections of the public
recording statutes. The laws of the State of Ohio as presently
constituted permit those financial institutions to make that choice.
{¶15} The court therefore dismissed appellants’ complaint and this appeal
follows. Appellants assign the following as error:
{¶16} “The trial court erred in granting defendants’ joint motion to dismiss the
plaintiffs’ second amended complaint for failure to state a claim upon which relief may
be granted.”
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{¶17} An appellate court reviews a judgment granting a Civ.R. 12(B)(6) motion
to dismiss de novo. Perrysburg Twp. v. Rossford, 103 Ohio St. 3d 79, 2004-Ohio-4362,
¶5. A Civ.R. 12(B)(6) motion to dismiss for failure to state a claim upon which relief can
be granted is procedural and tests the sufficiency of the complaint. State ex rel. Hanson
v. Guernsey Cty. Bd. of Commrs., 65 Ohio St. 3d 545, 548 (1992). A trial court
presumes all factual allegations in the complaint are true and must make all reasonable
inferences in favor of the non-moving party. Perez v. Cleveland, 66 Ohio St. 3d 397,
399 (1993). “[A]s long as there is a set of facts, consistent with the plaintiff’s complaint,
which would allow the plaintiff to recover, the court may not grant a defendant’s motion
to dismiss.” York v. Ohio State Hwy. Patrol, 60 Ohio St. 3d 143, 145 (1991).
{¶18} Appellants first argue the trial court erred in granting appellees’ motion
because, in doing so, it ignored the plain language of R.C. 5301.25 and R.C. 5301.32
providing that recordation of mortgage assignments is mandatory.
{¶19} “When interpreting a statute, a court’s paramount concern is legislative
intent.” Risner v. Ohio Dept. of Natural Resources, Ohio Div. of Wildlife, 144 Ohio St. 3d
278, 2015-Ohio-3731, ¶12. “‘To discern legislative intent, we first consider the statutory
language, reading all words and phrases in context and in accordance with rules of
grammar and common usage.’” See Holland v. Gas Ents. Co., 4th Dist. Washington No.
14CA35, 2015-Ohio-2527, ¶14, quoting Ohio Neighborhood Finance, Inc. v. Scott, 139
Ohio St. 3d 536, 2014-Ohio-2440, ¶22, citing R.C. 1.42. “We apply the statute as written
* * *, and we refrain from adding or deleting words when the statute’s meaning is clear
and unambiguous.” Risner at ¶12.
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{¶20} R.C. 5301.25 provides, in pertinent part: “All deeds, land contracts * * *
and instruments of writing executed for the conveyance or encumbrance of lands,
tenements, or hereditaments * * * shall be recorded in the office of the county recorder
of the county in which the premises are situated. Until so recorded or filed for record,
they are fraudulent insofar as they relate to a subsequent bona fide purchaser having,
at the time of purchase, no knowledge of the existence of that former deed, land
contract, or instrument.” (Emphasis added.)
{¶21} R.C. 5301.32 provides, in pertinent part: “A mortgage may be assigned
or partially released by a separate instrument of assignment or partial release * * *. The
separate instrument of assignment or partial release shall be recorded in the county
recorder’s official records.”
{¶22} Appellants assert the General Assembly selected the words “shall be
recorded” in both statutes as a mandate; namely, to require the recordation of all
mortgages or assignments in the county recorder’s office. Appellants maintain the plain
language is unambiguous and indicative of a clear and unequivocal intent that the term
“shall” be construed as a mandatory declaration that such instruments be recorded as
provided by the statutes. While we do not disagree that the term shall is indicative of a
mandate, the term must be understood in proper context.
{¶23} “The purpose of the recording statutes is to put other lien holders on
notice and to prioritize the liens.” GMAC Mtge. Corp. v. McElroy, 5th Dist. Stark No.
2004-CA-00380, 2005-Ohio-2837, ¶16; see also HSBC Mort. Svc., Inc. v. McGuire, 7th
Dist. Columbiana No. 07 CO 44, 2008-Ohio-6586, ¶18; Holstein v. Crescent
Communities, Inc., 10th Dist. Franklin No. 02AP-1241, 2003-Ohio-4760, ¶23 (“The main
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purpose of the recording is to establish priority among creditors and bona fide
purchasers.”) The statutes in question are consequently intended to protect existing
lien holders seeking to give notice of their secured status as well as potential
purchasers and creditors interested in the existence of prior liens. If, therefore,
mortgagees and assignees do not wish to protect themselves and are “satisfied with the
security afforded by the mortgages [or assignments] unrecorded, there [is] no necessity
for recording them.” Stewart v. Hopkins, 30 Ohio St. 502, 526-527 (1876).
{¶24} In light of the statutory purpose, we maintain R.C. 5301.25 and R.C.
5301.32 do not set forth a universal command that all mortgages and assignments be
recorded. Instead, they merely direct that liens “shall be recorded” in a specific place,
or else the holder risks losing his, her, or its interests in the property to a bona fide
purchaser or other party who may not be on notice of the mortgagee’s or assignee’s
secured status. Thus, the “shall be recorded” language, when read in proper context,
indicates not that every mortgage or assignment must be recorded, but only that such
instruments must be recorded in the county where the property is located in order to
preserve the lien holder’s rights against others who would otherwise lack notice of the
lien.
{¶25} Although the instant issue has not been broached in Ohio, various federal
courts have adopted the foregoing interpretation of recording statutes with substantially
similar language in similar cases brought against MERS and its members. In Union
County, Illinois v. MERSCORP, Inc., 735 F.3d 730 (7th Cir.2013), the Seventh Circuit
Court of Appeals interpreted an Illinois statute, which contained a materially similar
10
directive as the statutes at issue in this matter.1 The court held that the phrase “shall be
recorded” did not create a mandatory duty to record. The court observed:
{¶26} [A] moment’s reflection will reveal the shallowness of [the
counties’] recourse to “plain meaning,” a tired, overused legal
phrase. For suppose a department store posts the following notice:
“All defective products must be returned to the fifth floor counter for
refund.” Obviously this is not a command that defective products
be returned; the purchaser is free to keep a defective product,
throw it out, or give it as a present to his worst friend. There’s an
implicit “if” in the command: If you want to return a product and get
a refund, here’s where you have to return it. Similarly, section 28 of
the Conveyances Act may just mean that if you want to record
your property interest you must do so in the county in which the
property is located. (Emphasis sic.) Union County, at 733.
{¶27} The court went on to observe that “the purpose of recordation has never
been understood to supplement property taxes by making every landowner, mortgagee,
etc.[,] pay a fee for a service he doesn’t want * * *. Recording is a valuable service,
provided usually for a modest fee - but provided only to those who think the service
worth the fee.” Id. at 733–34.
{¶28} Likewise, in Montgomery Co., Pennsylvania v. MERSCORP, Inc., 795
F.3d 372 (3d Cir.2015), the Third Circuit Court of Appeals, following the reasoning set
forth in Union County, concluded Pennsylania’s recording statute, 21 Pa. Stat. Sec 351,
which is also materially identical to Ohio’s statutes, imposed no duty to record all land
conveyances. Moreover, the Eighth Circuit held, in County of Ramsey v. MERSCORP
Holdings, Inc., 776 F.3d 947 (8th Cir.2014), that Minnesota’s recording statute, also
nearly identical to Pennsylvania’s and Ohio’s law, imposed no duty to record mortgage
assignments. Finally, in Harris Co., Tex. v. MERSCORP, Inc., 791 F.3d 545, 553–57
1. 765 ILCS 5/28, Illinois statutes governing “Recording Instruments, Prohibitions,” provides, in relevant
part: “Deeds, mortgages, powers of attorney, and other instruments relating to or affecting the title to real
estate in this state, shall be recorded in the county in which such real estate is situated * * *.”
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(5th Cir.2015), the Fifth Circuit held the Texas law, providing that in order to “release,
transfer, assign, or take another action relating to an instrument that is filed”, a person
“must” file another instrument relating to the action in the same manner, imposes no
duty to record.
{¶29} In light of the foregoing, we hold neither R.C. 5301.25 nor R.C. 5301.32
impose a duty to record mortgages or assignments. We recognize, however, the trial
court found that recordation was not mandatory because the subject statutes failed to
state who must record the document and when it shall be recorded. Implicit in the
recording statutes at issue is the recognition that the mortgagee or the assignee would
be the party to record the instrument because recordation functions to protect these
parties. To wit, if the purpose of the recording statute is to give notice to the public of
liens and, as a result, protect and prioritize the lien holder, it follows the lien holder
would be the individual who has the burden of filing, if it chooses to enjoy the security of
public filing. Moreover, it also follows that a mortgagee or assignee who desires the
protection and security of recordation would file the respective lien as efficiently as
possible to obtain the statutory protections that result from placing the public on notice
of its interest. As a result, we find the trial court’s rationale in dismissing appellants’
complaint to be wanting; because, however, we conclude the language, purpose, and
context of the statutes under consideration demonstrate appellees were not obligated to
record the instruments, we agree with the trial court’s conclusion that appellants have
failed to state a claim upon which relief could be granted.
{¶30} One final point deserves attention. Appellants claim the trial court erred in
concluding they did not have standing to bring the underlying lawsuit. They premise
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their argument upon R.C. 309.12, which provides the county prosecutor “upon being
satisfied that funds of the county * * * have been illegally drawn or withheld from the
county treasury * * * or that money is due the county * * * may, by civil action in the
name of the state, apply to a court of competent jurisdiction, * * * recover such money
as is due the county.” If, however, appellees are not obligated to record the instruments
under the statutes at issue, the county is not entitled to filing fees. Accordingly, the
county is not due money. Hence, regardless of the prosecutor’s subjective “satisfaction”
that money was “due the county,” the county is not entitled to fees as a matter of law.
Owing to our substantive analysis above, we additionally hold R.C. 309.12 does not
confer standing on appellants to bring suit in this instance. Appellants’ remaining
issues, relating to the trial court’s dismissal of their unjust enrichment, civil conspiracy,
and public nuisance claims are all based on the entitlement to fees and are therefore
moot and without merit.
{¶31} Appellants’ assignment of error is not well taken.
{¶32} For the reasons discussed in this opinion, the judgment of the Geauga
County Court of Common Pleas is affirmed.
TIMOTHY P. CANNON, J., concurs with a Concurring Opinion,
_____________________
TIMOTHY P. CANNON, J., concurring.
{¶33} I concur with the judgment and analysis of the lead opinion. I write
separately because I also agree with the analysis employed by the trial court in this
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matter; I therefore concur with the decision to affirm the trial court’s judgment for
additional, not different, reasons. If the statute was meant to obligate recording, it
should have directed who was obligated to record and the consequences for failing to
do so.
{¶34} I also find it necessary to note that the dissent’s criticism of the lead
opinion regarding the word “shall” appears misplaced. Nowhere in the lead opinion is
there a statement or inference indicating an intention to embrace anything other than
“mandatory” as the appropriate definition of “shall.” The disagreement here, aptly
stated, is regarding what actions the word “shall” was intended to apply—not regarding
the definition of “shall.”
DIANE V. GRENDELL, J., dissents with a Dissenting Opinion.
_____________________
DIANE V. GRENDELL, J., dissents with a Dissenting Opinion.
{¶35} I respectfully dissent from the majority’s analysis and affirmance of the
lower court’s dismissal of the appellants’ complaint, which seeks to recoup the losses
they have experienced, and remedy the confusion that has been caused from MERS’
failure to properly record assignments of mortgages. Since a thorough examination of
the pertinent statutory language reveals that recordation is mandatory, the trial court’s
decision should be reversed.
{¶36} To determine the proper outcome, it is critical to correctly apply and
understand the legislature’s use of the term “shall.” In both R.C. 5301.25 and 5301.32,
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the legislature stated that pertinent documentation, including mortgages and
assignments “shall be recorded” in the office of the county recorder. (Emphasis
added.) The meaning of the word “shall” is well-settled law. The Ohio Supreme Court
has repeatedly held that “shall” is to be “interpreted to make mandatory the provision in
which it is contained, absent a clear and unequivocal intent that it receive a construction
other than its ordinary meaning.” (Emphasis added.) State v. Palmer, 112 Ohio St. 3d
457, 2007-Ohio-374, 860 N.E.2d 1011, ¶ 19, quoting Lakewood v. Papadelis, 32 Ohio
St.3d 1, 3-4, 511 N.E.2d 1138 (1987); Risner v. Ohio Dept. of Natural Resources, Ohio
Div. of Wildlife, 144 Ohio St. 3d 278, 2015-Ohio-3731, 42 N.E.3d 718, ¶ 16. Further,
“shall” is commonly defined as “has a duty to” or “is required to.” Black’s Law Dictionary
1407 (8th Ed.2004). The definition’s notes explain that “[t]his is the mandatory sense
that drafters typically intend.”
{¶37} This is not one of those few cases where “shall” addresses conduct that is
anything other than mandatory, since the legislature has not indicated that to be the
case. No language was included to mitigate the mandatory effect of the word “shall.”
We need look no further than the statutes’ plain language, since, “[i]f the statute
conveys a clear, unequivocal, and definite meaning, interpretation comes to an end.”
Cincinnati Community Kollel v. Testa, 135 Ohio St. 3d 219, 2013-Ohio-396, 985 N.E.2d
1236, ¶ 25.
{¶38} Looking at the statutes in their proper context, the legislature used the
word “shall” immediately prior to the term “be recorded.” This leads to the conclusion
that the language means exactly what it states: pertinent documents must be recorded
in all situations. Such a reading is supported by further reference to the statutes.
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{¶39} First, the general wording of the statutes shows the legislative intent for all
mortgages to be recorded. While the majority argues that these words merely allow
recording but mandate where such recording should take place, this result could and
would have been achieved through the use of entirely different language. For example,
the statute could have simply read “may be recorded.” Or, the statute could have stated
“if a party wishes to record a mortgage, such recording shall take place at the county
recorder’s office” or that recording “shall only be perfected by filing in the county
recorder’s office in the county where the property is located.” This would convey an
entirely different meaning than that a mortgage or assignment “shall be recorded.”
{¶40} Additional wording within R.C. 5301.25 provides further context.
Immediately after the provision requiring that the pertinent document “shall be
recorded,” the statute states the following: “Until so recorded or filed for record, they are
fraudulent insofar as they relate to a subsequent bona fide purchaser having, at the time
of purchase, no knowledge of the existence of that former deed, land contract, or
instrument.” (Emphasis added.) Use of the word “until” in this context indicates that the
action of recording should take place at some time. See Webster’s II New College
Dictionary 1239 (3d Ed.2005) (“until” is defined as “[u]p to the time of”). If the word
“shall” did not mandate recordation, the second sentence would more likely read “if the
deed is not recorded,” the applicable penalties will apply. Again, there were many ways
the legislature could have worded the statute if it intended to make recording optional or
discretionary, yet the legislature did not do so.
{¶41} Finally, subsection (C) of R.C. 2301.25, states that “tax certificates * * *
may be recorded in the office of the county recorder of the county in which the premises
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are situated.” Under the majority’s interpretation of the law, both “may” and “shall”
would have the exact same meaning within the same section of the Revised Code.
Presumably, since the legislature used two separate terms (shall and may), the
legislature recognized that they must have different meanings. Compare Day v. James
Marine, Inc., 518 F.3d 411, 416 (6th Cir.2008) (“If words are known by the surrounding
‘company they keep,’ Logan v. United States, 552 U.S. 23, 128 S. Ct. 475, 482, 169
L. Ed. 2d 432 (2007), they are surely known by how they are used in the surrounding
sections of the same statute * * *.”).
{¶42} The majority’s interpretation essentially holds that “shall” does not really
mean “shall,” but rather means “may.” This “Alice through the Looking Glass”
interpretation of the English language will cause confusion when considering the many
statutes that use the term “shall.” The interpretation advanced herein respects the
English language, avoids confusion, and is consistent with the practical application of
the recording statutes. As the appellants, who are in the best position to see the
consequences from a lack of recording, have emphasized, the interpretation advanced
by the majority and the appellees creates disorder for governmental entities attempting
to make sense of property records—from the treasurers, to the sheriffs, to the records
offices. This extends to the public, which has a right to be aware of property records.
{¶43} Pinney v. Merchants’ Natl. Bank of Defiance, 71 Ohio St. 173, 72 N.E. 884
(1904), reinforces these concerns. Pinney explained that the recording acts “rest upon
a recognition of the policy that there shall somewhere be found a record which will
disclose the state of the title of all lands within the county” and that “[t]he business
public, therefore, has a high interest in the maintenance of such a system as will enable
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every person, by the ordinary inquiry—that is, an examination of the records—to
ascertain the condition of titles.” (Citation omitted.) Id. at 182. This is consistent with
the mandate that mortgages “shall be recorded.”
{¶44} Further, while this specific issue has not been ruled upon in Ohio, a
“requirement” to record has been referenced in several courts. Mid Am. Natl. Bank &
Trust Co. v. Comte/Rogers Dev. Corp., 6th Dist. Lucas No. L-95-329, 1996 WL 549249,
2 (Sept. 30, 1996) (R.C. 5301.32 “requires that the instrument be recorded”); Greene v.
Katz, 8th Dist. Cuyahoga Nos. 37639, et al., 1978 WL 218135, 3 (Oct. 12, 1978) (R.C.
5301.25 “requires the recording of leases”); see also Cleveland v. Ibrahim, N.D.Ohio
No. 1:01 CV 1582, 2003 WL 24010953, 1, fn. 3 (May 29, 2003) (noting that the pertinent
statutes require “recordation”). While the majority cites cases from other states that
have ruled to the contrary, those are not binding precedent that must or should be
followed by this court.
{¶45} As is demonstrated above, the pertinent statutes must be applied to
require recording, since they do not “contain a clear and unequivocal intent that ‘shall’ *
* * means anything other than ‘must.’” Risner, 144 Ohio St. 3d 278, 2015-Ohio-3731, 42
N.E.3d 718, at ¶ 16. An examination of the complete statutory language only serves to
bolster this conclusion. The impact that the failure to record has on the counties and
public as a whole further affirms the propriety of the legislative use of the word “shall”
and why the legislature’s mandate must be enforced.
{¶46} The concurring judge mischaracterizes the foregoing as criticizing the
majority’s understanding of the word “shall.” As is plainly indicated throughout this
opinion, the problem with the majority’s decision is the majority’s failure to give the plain
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meaning to the word “shall” ascribed to it by the English language and instead
redefining the word. This results in the reinterpretation of the plain language used by
the Legislature and the incorrect application of the law in this case.
{¶47} For these reasons, the trial court’s judgment should be reversed.
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