MERSCORP HOLDINGS, INC., ET AL. v. DANNEL P. MALLOY ET AL.
(SC 19376)
Supreme Court of Connecticut
Argued October 14, 2015—officially released February 23, 2016
Palmer, Zarella, Eveleigh, Espinosa and Robinson, Js.
Linda L. Morkan, with whom were Benjamin C. Jensen and, on the brief, James A. Wade and Norman H. Roos, for the appellants (plaintiffs). Matthew J. Budzik, assistant attorney general, with whom were Heather J. Wilson, assistant attorney general, and, on the brief, George Jepsen, attorney general, for the appellees (defendants). Ryan P. Barry and Michael J. Dyer filed a brief for the Connecticut Bankers Association et al. as amici curiae. J. L. Pottenger, Jr., Jeffrey Gentes, and Aurelia Chaudhury, Nicholas Gerschman and Marian Messing, law student interns, filed a brief for the Jerome N. Frank Legal Services Organization and the Connecticut Fair Housing Center as amici curiae.
******************************************************
The “officially released” date that appears near the beginning of each opinion is the date the opinion will be published in the Connecticut Law Journal or the date it was released as a slip opinion. The operative date for the beginning of all time periods for filing postopinion motions and petitions for certification is the “officially released” date appearing in the opinion. In no event will any such motions be accepted before the “officially released” date.
All opinions are subject to modification and technical correction prior to official publication in the Connecticut Reports and Connecticut Appellate Reports. In the event of discrepancies between the electronic version of an opinion and the print version appearing in the Connecticut Law Journal and subsequently in the Connecticut Reports or Connecticut Appellate Reports, the latest print version is to be considered authoritative.
The syllabus and procedural history accompanying the opinion as it appears on the Commission on Official Legal Publications Electronic Bulletin Board Service and in the Connecticut Law Journal and bound volumes of official reports are copyrighted by the Secretary of the State, State of Connecticut, and may not be reproduced and distributed without the express written permission of the Commission on Official Legal Publications, Judicial Branch, State of Connecticut.
******************************************************
Opinion
PALMER, J. In
This case concerns the filing fees that the parties to a residential mortgage loan must pay to record mortgage documents in the public land records in Connecticut. Because the plaintiffs raise both federal and state constitutional issues of first impression, it will be helpful before considering the plaintiffs’ claims to briefly review the traditional procedure for recording residential mortgage documents, certain relatively recent changes to that system, and the novel response of the Connecticut legislature to those changes.
Under the traditional residential mortgage model, a person seeking to finance the purchase of a residential property obtains a loan from a lender, typically a bank, in exchange for a promissory note committing the borrower to repay the loan. To secure the loan, the borrower provides the lender a mortgage on the property. Although, in Connecticut, there is no legal requirement that the lender record the mortgage in the public land records, mortgages typically are recorded—via the clerk of the town in which the property is situated—in order (1) to perfect the lender‘s security interest by giving public notice thereof, and (2) to maintain a complete public chain of title. Under the traditional model, the bank or other lender maintains the loan on its books and continues to service the loan until it is repaid. At that point, the parties typically record a release of the mortgage in the land records. At a minimum, then, the life of a residential mortgage loan may involve only two recordable events, although other events—for example, a transfer of the mortgage loan to another lender, or the creation or subordination of a home equity credit line—also may arise under the traditional model.
The most significant factor in the decline of the traditional residential mortgage model has been the development and evolution of the secondary mortgage market. A secondary market is created when the initial lender sells the mortgage loan to outside investors. Doing so provides local lenders with greater liquidity, which facilitates additional home buying, and also allows large outside investors to pool—and thus to minimize—the risk that any particular loan will go into default. Although the modern secondary mortgage market had its genesis in the creation of the Federal Housing Authority and associated government sponsored financing corporations such as Fannie Mae in the 1930s, it expanded dramatically in the 1980s with the advent of new types of mortgage backed securities for sale in the private equity markets.
For mortgage loans sold in the secondary market, the investor typically engages a third party to perform servicing functions such as payment collection and file maintenance. Both the loan itself and the servicing rights may be sold or transferred multiple times over the life of a loan. Under the common-law rule, as codified in many states, the mortgage follows the note, so that an investor who acquires a residential note automatically obtains the attached security interest as well.
Although the development of a robust and sophisticated secondary market has had a dramatic impact on the liquidity and, with some notable exceptions, the stability of the residential mortgage loan market, it also has created challenges for the public land record system. Because the ownership and servicing rights to a loan may be
To address these problems, in the 1990s, the major public financial service corporations, in collaboration with various private interests, developed the national Mortgage Electronic Registration Systems (MERS) system. There are two primary components to the MERS model.3 First, MERS operates a national electronic registration system that tracks any changes in the ownership and servicing rights of MERS-registered loans between MERS members, who include in-state and out-of-state mortgage lenders, servicers and subservicers, and public finance institutions. In this sense, MERS operates as a centralized, virtual alternative to the hundreds of traditional county or town land recording systems throughout the country. Second, because MERS members cannot completely eschew the use of the public land records, MERS becomes the mortgage nominee on any loans held by MERS members, and is identified as such when the mortgage is initially recorded in the land records. Recording a mortgage with MERS as a mortgage nominee essentially creates a placeholder for the electronic MERS system in the public records, allowing the two systems to interoperate. That is to say, if a party searching the chain of title on a property comes upon a recorded mortgage to MERS, the party is thereby notified that the MERS database may be consulted to determine the present beneficial owner of the mortgage and loan, as well as any related servicing rights or subordinate security interests. MERS remains the mortgagee of record in the public records until the mortgage either is released or assigned to a nonmember of MERS.
One potential advantage of the MERS system is that it eliminates the costs, in both time and fees, associated with recording each subsequent mortgage assignment in the public land records. Although the plaintiffs in the present case do not concede that any such savings have been realized in Connecticut, the parties do agree that, as of 2013, approximately 65 percent of mortgage loans nationally and in Connecticut originated with MERS acting as the mortgagee. The plaintiffs’ principal place of business is in Virginia.
Turning our attention to the legislation that led to the present action, we note that, prior to July 15, 2013,
Section 7-34a, as amended, further provides that, with two exceptions, when a nominee of a mortgagee files a document in the land records, the town clerk shall collect a fee of $116 for the first page filed and $5 for each additional page.
The net effect of the amendments to
The 2013 amendments also shifted how the recording fees on MERS-related transactions are allocated. See generally P.A. 13-184, § 97, and P.A. 13-247, § 81, codified at
The parties agree that the legislature adopted the amendments to
II
As an initial matter, we must address the dispute between the parties about whether the fees imposed by
III
We now address the merits of the plaintiffs’ various constitutional challenges,6 beginning with the plaintiffs’ claim that
“To prevail on an equal protection claim, a plaintiff first must establish that the state is affording different treatment to similarly situated groups of individuals. . . . [I]t is only after this threshold requirement is met that the court will consider whether the statute survives scrutiny under the equal protection clause.” (Citation omitted; internal quotation marks omitted.) Keane v. Fischetti, 300 Conn. 395, 403, 13 A.3d 1089 (2011). For purposes of this case, we will assume without deciding that the similarly situated requirement is satisfied and proceed to consider whether the legislature was warranted in singling out the plaintiffs for disparate treatment. Cf. City Recycling, Inc. v. State, 257 Conn. 429, 449, 778 A.2d 77 (2001).
“When a statute is challenged on equal protection grounds, whether under the United States constitution or the Connecticut constitution, the reviewing court must first determine the standard by which the challenged statute‘s constitutional validity will be determined.” (Internal quotation marks omitted.) D.A. Pincus & Co. v. Meehan, 235 Conn. 865, 875, 670 A.2d 1278 (1996). In the present case, to prevail on their equal protection claim, the plaintiffs must overcome a highly deferential standard of review. “If the statute does not [affect] either a fundamental right or a suspect class, its classification need only be rationally related to some legitimate government purpose . . . .” (Internal quotation marks omitted.) Id. This rational basis review test “is satisfied [as] long as there is a plausible policy reason for the classification . . . the legislative facts on which the classification is apparently based rationally may have been considered to be true by the government decisionmaker . . . and the relationship of the classification to its goal is not so attenuated as to render the distinction arbitrary or irrational . . . .” (Citations omitted; internal quotation marks omitted.) Id., 876.
“It is undisputed that the constitutionality of the taxation scheme at issue
Turning to the case before us, we first consider whether the challenged statutes seek to accomplish a legitimate public purpose. The parties agree that one primary purpose of the legislature in imposing higher recording fees on mortgage nominees such as MERS was simply to raise additional revenues, either to compensate for fees allegedly lost as a result of the MERS business model or, more generally, to help balance the state‘s budget. It is well established that raising revenues is a legitimate purpose—often the primary purpose—of a tax or a fee. See Harbor Ins. Co. v. Groppo, 208 Conn. 505, 511, 544 A.2d 1221 (1988) (tax); Eagle Rock Sanitation, Inc. v. Jefferson County, United States District Court, Docket No. 4:12-CV-00100-EJL-CWD (D. Idaho November 22, 2013) (fee). Accordingly, the first prong of the test is satisfied.8
The dispute between the parties thus centers around the question of whether it is permissible for the legislature to impose a higher share of the state‘s revenue burden on nominees such as MERS than it
Before considering whether the legislature had a rational basis for imposing higher recording fees on nominees such as MERS than on other mortgagees, we first address the plaintiffs’ contention that we must restrict our analysis in this regard to those theories that the state raised before the trial court and that find evidentiary support in the record. The plaintiffs misstate the law. As the trial court properly recognized, the state “has no obligation to produce evidence to sustain the rationality of a statutory classification. [A] legislative choice is not subject to courtroom [fact-finding] and may be based on rational speculation unsupported by evidence or empirical data. . . . A statute is presumed constitutional . . . and [t]he burden is on the one attacking the legislative arrangement to negative every conceivable basis which might support it . . . whether or not the basis has a foundation in the record.” (Citations omitted; internal quotation marks omitted.) Heller v. Doe ex rel. Doe, 509 U.S. 312, 320–21, 113 S. Ct. 2637, 125 L. Ed. 2d 257 (1993). Indeed, it is well established that a reviewing court need not restrict its analysis even to those rationales proffered by the parties but may itself hypothesize plausible reasons why a legislative body might have drawn the challenged statutory distinctions. See, e.g., Federal Communications Commission v. Beach Communications, Inc., 508 U.S. 307, 318, 113 S. Ct. 2096, 124 L. Ed. 2d 211 (1993); Kadrmas v. Dickinson Public Schools, supra, 487 U.S. 462–63; American Express Travel Related Services Co. v. Kentucky, 641 F.3d 685, 690 (6th Cir. 2011). In the present case, in light of the highly deferential standard of review that applies to tax and user fee legislation and other forms of purely economic regulation, we perceive at least two conceivable bases on which the legislature might reasonably have imposed higher recording fees on nominees such as MERS than on other mortgagees.
First, the legislature might simply have concluded that a large corporation such as MERS, which is involved in nearly two thirds of the nation‘s residential mortgage transactions, is better able to shoulder high recording fees than are smaller mortgagees. Although it is true that large banks, loan servicing companies, and other well-heeled mortgagees may be no less able to afford such fees, a statute subject to rational basis review can be under inclusive without running afoul of the equal protection clause. See, e.g., Nordlinger v. Hahn, 505 U.S. 1, 11, 112 S. Ct. 2326, 120 L. Ed. 2d 1 (1992) (“[i]n structuring internal taxation schemes the [s]tates have large leeway in making classifications and drawing lines [that] in their judgment produce reasonable systems of taxation” [internal quotation marks omitted]); Markley v. Dept. of Public Utility Control, supra, 301 Conn. 70 (“[A] legislature is not bound to tax every member of a class or none. It may make distinctions of degree having a rational basis, and when subjected to judicial scrutiny they must be presumed to rest on that basis if there is any conceivable state of facts [that] would support it.” [Internal quotation marks omitted.]); Harbor Ins. Co. v. Groppo, supra, 208 Conn. 511 (“[R]ecognizing that any plan of taxation necessarily has some discriminatory impact . . . we have previously stated the operative test for the validity of a tax statute to be the following: As long as some conceivable rational basis for the difference
Second, as the trial court recognized, the legislature reasonably may have determined that mortgage assignments that typically would be recorded in the public land records are not recorded for loans registered with the MERS system because MERS remains the mortgagee of record for its members. Accordingly, the legislature could have raised the initial recording fee that MERS pays, as well as the final fee that is paid when the mortgage is released or transferred out of the MERS system, to compensate for the fees “lost” over the course of the life of the loan.
The plaintiffs offer four arguments in response: (1) there is no evidence in the record to support the contention that assignments are recorded less frequently for MERS loans than for other mortgagees’ loans; (2) there is no legal requirement that assignments be recorded in the public land records; (3) even if town clerks do perform fewer recording duties with respect to MERS loans than non-MERS loans, there is no reason to compensate town clerks for lost recording revenues because they already save the costs associated with not having to record assignments of MERS loans, or, put differently, clerks are not entitled to payment for ser-vices that they do not perform; and (4) even if town clerks have lost recording fees under the MERS system, there is no rational
With respect to the plaintiffs’ argument that there is no evidence in the record that mortgage assignments are recorded less frequently for MERS-listed loans than for non-MERS loans, we already explained that, under the rational basis test, our review is not limited to theories that the state has documented at trial or that have been subject to judicial fact-finding. Rather, courts may consider—and it is the plaintiffs who must debunk—any rationale that might plausibly have motivated the legislature. In the present case, it cannot be seriously suggested that the MERS model might not result in fewer recordings in the public land records, with concomitant cost savings to MERS and its users. Indeed, the plaintiffs’ argument is undercut repeatedly by the amici supporting their own position. The amici comprising two bankers associations and a land title association represent, for example, that (1) prior to the advent of MERS, recording expenses added at least $30 to the cost of each loan, and sometimes substantially more, (2) MERS was devised “with an eye toward eliminating many of the unnecessary costs . . . associated with land title and recording issues,” (3) assignments that typically were filed on the land records before the establishment of MERS are no longer required, (4) this reduced need for assignments results in lower title insurance and closing costs for both buyers and sellers using the MERS system, and (5) MERS “made the transfer of loans in the secondary market both cheaper and simpler.”
The amici also direct our attention to scholarly literature concluding that MERS “reduces the need to pay additional recording fees associated with subsequent transfers of mortgage loans or mortgage loan servicing rights” and to an article published by a former senior executive officer of MERS predicting that, because MERS “eliminates the need to record later assignments in the public land records . . . MERS will save the mortgage industry $200 million a year by eliminating the need for many assignments. Because MERS should decrease the cost of servicing transfers, mortgage loan portfolios may begin to reflect a price difference if the loans are MERS registered.” Moreover, “[w]hether [town recorders‘] assignment revenues will drop [as a result] remains an open question.” In light of these publicly available statements, we have no difficulty concluding that the legislature might reasonably have determined that parties to MERS-listed loans can obtain significant cost savings in recording fees over the life of a loan and that, as a result, it is not unfair to ask them to pay higher recording fees at the outset and again when the mortgage ultimately is released or transferred out of the MERS system.
The plaintiffs’ second argument, namely, that there is no legal requirement that assignments of loan servicing rights be recorded in Connecticut, is a red herring. It is clear from the above quoted statements that, when the plaintiffs represent that the MERS system “eliminates the need to record later assignments in the public land records“; (emphasis added); they refer not to any legal recording requirement but, rather, to the fact that, from a practical standpoint, loan assignments must be recorded if the holder is to perfect its security interest and to avoid potentially costly gaps in the chain of title.
Second, the plaintiffs fail to acknowledge that the service provided by a clerk‘s office only begins with the recording of a document. The principal service provided, and the principal value to the recording party, is that a record of the transaction is perpetually maintained and made available to the public for search by any interested party. This is the primary reason parties opt to record assignments and other loan documents. One value of the MERS system to subsequent transferees, then, is that it allows them essentially to free ride on the public recording system. They reap the benefit of MERS’ initial recording as mortgagee, without having to pay—at least without having to pay the clerk—for the ongoing benefit of the public notice. It is reasonable to assume that the legislature imposed higher up-front recording fees on MERS loans as a way to remedy this free rider problem.
Third, the plaintiffs go astray in considering the issue solely from the standpoint of the town clerk. Regardless of whether the clerks have lost money as a result of a lower recording rate for assignments of MERS loans, it seems clear that MERS, its members, and the buyers and sellers involved in MERS-listed transactions do achieve some savings in recording costs. If the legislature concluded that this system of loan processing results in significant cost savings for MERS members and its users, the legislature was free to impose a higher tax or fee on those transactions in order to recapture a portion of those savings. See Rosemont v. Priceline.com, Inc., United States District Court, Docket No. 09 C 4438 (N.D. Ill. October 14, 2011) (equal protection clause was not offended when town imposed hotel tax on only those travel companies using distinct business model that otherwise would have resulted in tax savings for those companies); Horizon Blue Cross Blue Shield v. State, supra, 425 N.J. Super. 22–23 (equal protection clause was not offended when state imposed tax solely on health service companies, of which plaintiff was sole exemplar, which previously had advantage of certain tax loopholes).
Finally, the plaintiffs’ fourth argument is that, even if town clerks have lost recording fees as a result of the MERS system, there is no rational relationship between those losses and the heightened fees imposed under
IV
We next consider the plaintiffs’ claim that
Although the recording transactions at issue in this case may themselves be purely local in nature, the presence of MERS as a participant indicates that many of the mortgage loans involved ultimately will be transferred on the national secondary loan market. For this reason, and in light of the unique role that MERS plays in the national secondary market, we will assume that interstate commerce is implicated. See Camps Newfound/Owatonna, Inc. v. Harrison, 520 U.S. 564, 573, 117 S. Ct. 1590, 137 L. Ed. 2d 852 (1997) (“if it is interstate commerce that feels the pinch, it does not matter how local the operation [that] applies the squeeze” [internal quotation marks omitted]).
We first consider what legal standard governs challenges to taxes and user fees under the dormant commerce clause. The
Fortunately, we need not wade into this quagmire or attempt to divine the precise standards by which the United States Supreme Court might judge the statutes at issue in this case. This is because the parties apparently agree that their dispute boils down to the question of whether two central criteria—criteria that reappear throughout the United States Supreme Court‘s various dormant commerce clause tests and frameworks—are satisfied. First, a state user fee or tax is presumed to violate the dormant commerce
A
Facial Discrimination
The plaintiffs first contend that the challenged statutes discriminate on their face against interstate commerce because they impose higher recording fees only on those transactions involving a mortgage nominee, such as MERS, that operates in conjunction with a national electronic database. The plaintiffs argue that there is no apparent justification for penalizing companies that operate national databases, as opposed to a hypothetical nominee operating a database that tracks only mortgage loans transferred between Connecticut-based entities or securing Connecticut-based properties. For this reason, they contend,
First, although the plaintiffs correctly note that a statute can facially discriminate against interstate commerce even if it does not expressly favor in-state over out-of-state businesses; see Healy v. Beer Institute, 491 U.S. 324, 340–41, 109 S. Ct. 2491, 105 L. Ed. 2d 275 (1989); the United States Supreme Court nevertheless has emphasized that “[t]he central rationale for the rule against discrimination is to prohibit state or municipal laws whose object is local economic protectionism, laws that would excite those jealousies and retaliatory measures the [c]onstitution was designed to prevent.” C & A Carbone, Inc. v. Clarkstown, 511 U.S. 383, 390, 114 S. Ct. 1677, 128 L. Ed. 2d 399 (1994); see also Dept. of Revenue v. Davis, supra, 553 U.S. 337–38 (“economic protectionism . . . designed to benefit in-state economic interests by burdening out-of-state competitors” is paradigmatic form of discrimination [internal quotation marks omitted]); Healy v. Beer Institute, supra, 326 (challenged statute ensured favorable pricing for residents of Connecticut and maintained competitiveness of Connecticut-based retailers); Philadelphia v. New Jersey, 437 U.S. 617, 624, 98 S. Ct. 2531, 57 L. Ed. 2d 475 (1978) (“[t]he crucial inquiry . . . must be directed to determining whether [the challenged statute] is basically a protectionist measure, or whether it can fairly be viewed as a law directed to legitimate local concerns, with effects [on] interstate commerce that are only incidental“). In the present case, there is no indication that the legislative choice to impose higher fees on nominees—whether in state or out of state—who operate national mortgage databases reflected an invidious discrimination against out-of-state interests, or an effort
Nor do we believe that the hypothetical favored mortgage nominee the plaintiffs conjure up—one that operates a Connecticut only electronic database—is anything other than a chimera. Because the secondary residential mortgage market is national in scope and is dominated by federal agencies that are located outside of this state, there would be no reason for a company to invest in an electronic registration system that tracks only loan transfers between Connecticut investors, or only loans issued in connection with Connecticut-based properties.11 The plaintiffs do not contend that any such competitor currently exists or is likely to emerge in the foreseeable future. As the Supreme Court explained in Associated Industries v. Lohman, 511 U.S. 641, 654, 114 S. Ct. 1815, 128 L. Ed. 2d 639 (1994), “[it has] never deemed a hypothetical possibility of favoritism to constitute discrimination that transgresses constitutional commands.“; see also Exxon Corp. v. Governor, 437 U.S. 117, 125, 98 S. Ct. 2207, 57 L. Ed. 2d 91 (1978) (disparate treatment claim was meritless when state‘s entire gasoline supply flowed in interstate commerce).
Second, notwithstanding the statutory reference to national electronic databases;
Third, the United States Supreme Court has explained that “a fundamental element of dormant [c]ommerce [c]lause jurisprudence [is] the principle that any notion of discrimination assumes a comparison of substantially similar entities.” (Internal quotation marks omitted.) Dept. of Revenue v. Davis, supra, 553 U.S. 342. As we explained in part III of this opinion, MERS is not substantially similar to other mortgagees—even other mortgage nominees—with respect to the roles they play in Connecticut‘s residential mortgage recording market. Whereas traditional mortgagees are primarily lenders or loan servicing companies, MERS is identified as a mortgagee in the public land records as a sort of placeholder, indicating to interested parties that the recent chain of title to a MERS-listed property may be traced by consulting the MERS database. Accordingly, the statutes do not facially discriminate against interstate commerce. Rather, they simply recognize that MERS, which uses the public land records as a means of enhancing the value that its member companies obtain from its electronic registration services, may realize a distinct and greater benefit from recording its interests than do other mortgagees.
Fourth, and relatedly, even if we believed that the statutes in question discriminated against interstate commerce, we would conclude, for reasons discussed in part III of this opinion, that there is no constitutional violation because such discrimination advances a legitimate local purpose. See, e.g., Camps Newfound/Owatonna, Inc. v. Harrison, supra, 520 U.S. 581. It is well established that interstate commerce can be made to “pay its way” under a state regulatory scheme without running afoul of the dormant commerce clause. (Internal quotation marks omitted.) Commonwealth Edison Co. v. Montana, 453 U.S. 609, 616, 101 S. Ct. 2946, 69 L. Ed. 2d 884 (1981). In the present case, to the extent that the purpose of the challenged legislation was merely to recoup from MERS the recording fees that its members otherwise would have paid upon the trans-fer of a mortgage in the secondary market,
B
Undue Burden
We next consider the plaintiffs’ claim that the challenged statutes place an undue burden on the national secondary mortgage market. Their argument appears to be that, despite the dearth of any evidence that the increased fees have adversely impacted MERS’ business or the secondary mortgage market in general, the simple fact that the state receives more than $5 million per year in increased fees on MERS-related transactions is, ipso
The amount of a tax or user fee is presumed to be appropriate; S. Wolfe, supra, 26 Stetson L. Rev. 739; and the plaintiffs must demonstrate that the burdens imposed on interstate commerce clearly outweigh the benefits. See, e.g., Dept. of Revenue v. Davis, supra, 553 U.S. 353. As we explained in part III of this opinion, we are not convinced that either the costs or the benefits of recording a MERS-listed mortgage are the same as for any other mortgagee. Let us assume that a hypothetical non-MERS thirty year mortgage loan is transferred to a different lender every ten years during the life of the loan and that each subsequent holder records its interest in the public land records. Under that scenario, the original lender‘s recording fees would afford it the benefit of ten years of public notice of its interest in the property, and the clerk‘s office would receive three recording fees—the initial one and the fees for two assignments—to subsidize its costs of operation over the term of the loan, not including the release when the loan is fully repaid. Under the same circumstances, however, MERS and its members would continue to receive the benefit of the initial filing fee for the entire thirty year term of the loan, regardless of the number of intervening assignments among MERS members, and the clerk‘s office will be correspondingly poorer. See S. Wolfe, supra, 742 (noting that length of use of public service “strongly affects cost“); id., 744 (noting importance of intangibles in calculating value of public service and that continued consumer use suggests that fees are not disproportionate to value provided). Accordingly, we cannot say that imposing higher front-end and back-end fees on MERS transactions in order to compensate for the reduced number of recorded mortgage assignments imposes an undue burden on MERS or, by extension, interstate commerce. See Associated Industries v. Lohman, supra, 511 U.S. 647 (interstate and intrastate transactions may be taxed differently, as long as ultimate burdens are comparable).
The United States Supreme Court also has suggested that, in gauging the burdens imposed on interstate commerce, a reviewing court should consider whether, if every state were to adopt the challenged policy, the result would be to “place interstate commerce at a disadvantage as compared with commerce intrastate.” (Internal quotation marks omitted.) Comptroller of the Treasury v. Wynne, supra, 135 S. Ct. 1802. In the present case, even if every state were to charge $106 extra to record MERS-listed mortgages in its corresponding land records, there is nothing in the record to suggest that those higher fees, taken together, would unduly burden interstate commerce. There is no indication that higher recording fees would so overshadow the benefits of participation in a national electronic registration system that borrowers and lenders would opt not to participate in MERS or that the vitality of the secondary mortgage market would be compromised. The parties have agreed that higher fees have not resulted in a loss of MERS business within this state, and there is no reason to believe the outcome would differ elsewhere, or nationally. Nor is there any evidence of (1) what share of the estimated $5.4 million that the state will receive in additional annual recording
In Davis, the United States Supreme Court also cautioned that a court “should be particularly hesitant to interfere . . . under the guise of the [c]ommerce [c]lause [when] a [state or] local government engages in a traditional government function,” of which the maintenance of public land records is clearly an example. (Internal quotation marks omitted.) Id., 341, quoting United Haulers Assn., Inc. v. Oneida-Herkimer Solid Waste Management Authority, supra, 550 U.S. 344. In light of this guidance, and given the parties’ stipulation that the legislation at issue has not redounded to the tangible detriment of the MERS business model, we are compelled to defer to the legislature‘s judgment that the fees at issue represent a reasonable approximation of the savings in recording costs generated by use of the MERS system. Accordingly,
The judgment is affirmed.
In this opinion the other justices concurred.