Sure, It’s Illegal, But Can I Sue?
South Carolina case law review
The South Carolina Supreme Court recently addressed an interesting issue of whether a party may bring an action to enforce a statute in Kubic v. MERSCORP, Opin. No. 27619 (March 30, 2016).
Kubic involves claims by county administrators and Registers of Deeds (collectively “Registers”) in various counties claiming that MERSCORP and other institutions were engaged in the practice of fraudulently recording documents, causing disruptions to the integrity of the public index of land transactions. MERS is a member-based organization comprised of lenders and other entities involved in the mortgage process. MERS engaged in the practice of naming itself as the nominal “lender” when it recorded a mortgage for a member-lender. MERS would be the “grantee” on the public index, even though it had no security interest whatsoever. This would allow the lender to continue to retain priority and avoid having to record new instruments in the event of an assignment. MERS essentially provided a framework through which members could transfer notes between each other without recording each and every exchange.
The Registers believed that this practice violated South Carolina law. Therefore, they filed numerous lawsuits against MERS and its members, seeking damages, declaratory judgment and injunctive relief. MERS and its members moved to dismiss, arguing that the Registers did not possess standing to file suit. The trial court denied the motions to dismiss, and the South Carolina Supreme Court granted certiorari to consider the novel legal questions presented in the motions.
The Court began by recognizing that a motion to dismiss is normally not the procedure to decide a “novel issue” such as that presented in this case. Nonetheless, even a matter of first impression can be decided on a motion to dismiss if it involves “simple statutory construction.”
the statute does not authorize Registers to file lawsuits in the event of fraudulent filings
In this case, the statute in question under which the Registers sued was S.C. Code § 30-9-30(B)(1), which states that a “register of deeds may refuse to accept the document for filing if he reasonably believes that the document is materially false or fraudulent or is a sham legal process.” If a register of deeds “reasonably believes” that a filed document ” is materially false or fraudulent, or is a sham legal process,” it may remove the document from the record. See S.C. Code § 30-9-30(B)(2).
Importantly, the statute does not authorize Registers to file lawsuits in the event of fraudulent filings. On this ground, MERS and its members argued that the Registers could not file a lawsuit to remedy the claimed improper filings. The Registers countered by arguing that the statute “by implication” granted them the right to file suit to rectify illegal filings.
The Supreme Court rejected the Registers’ argument. It noted that, while some statutes can be read to implicitly create a right of action, that will be the case “only if the legislation was enacted for the special benefit of a private party.” Doe v. Marion, 373 S.C. 390, 397, 645 S.E.2d 245, 248 (2007) (emphasis added). First, the Registers were not “private” parties, but were government officials. Additionally, the statute was not intended to specially benefit the Registers. Instead, the statute offered the Registers guidance in how to do their jobs and acknowledge an obligation on the part of Registers to only record proper filings. In fact, the statute expressly gave frustrated filers the right to sue Registers to enforce acceptance of their filings.
Moreover, the statute did grant the Registers a remedy in the event of improper filings. They could simply remove those filings, without having to ask the court for permission first. If that statutory tool is insufficient for the Registers to effectively maintain the integrity of the record, their remedy lies in the General Assembly, not the courts.
The lesson here is that not every violation of a statute can be remedied by a lawsuit. Generally, unless a remedy is express or clearly implied from the statute’s intent to benefit a private party, you may not sue someone simply because they broke a law. In the absence of such clear indications, it is likely that a court refuse to allow lawsuits to take the place of the executive branch as the enforcer of the law.
JOHN FLETCHER, is an associate attorney, working with the complex civil litigation and appellate practice teams, at Barnwell, Whaley, Patterson and Helms in the firms Charleston, SC office. The author’s views do not constitute legal advice or representation. Terms of use-disclaimer.
