Kevin M. Murphy, Kathleen K. Murphy, James L. Lang, Charlene Ann Brady, Erika R. Hogenson, Harold J. Thompson, III, Julianne Thompson, Miriam E. Stone, May K. Vang, Jeffrey A. Kirschbaum, and Tou A. Vang, Plaintiffs,
Aurora Loan Services, LLC, Aurora Bank FSB, Mortgage Electronic Registration Systems, Inc., MERSCORP, Inc., and Wilford & Geske, P.A., Defendants.
James L. Gunn, IV, Esq., Gunn Legal Services, LLC, Woodbury, MN, on behalf of Plaintiffs Kevin and Kathleen Murphy.
William B. Butler, Esq., Butler Liberty Law, LLC, Minneapolis, MN, on behalf of Plaintiffs.
J. Matthew Goodin, Esq., and Julie C. Webb, Esq., Locke Lord LLP, Chicago, IL; and, Michael R. Sauer, Esq., and Eric D. Cook, Esq., Wilford Geske & Cook, P.A., Woodbury, MN, on behalf of Defendants.
William F. Mohrman, Esq., Mohrman & Kaardal P.A., Minneapolis, MN, on behalf of William B. Butler.
MEMORANDUM OPINION AND ORDER
ANN D. MONTGOMERY, District Judge.
On August 15, 2013, the undersigned United States District Judge heard oral argument on Defendants Aurora Loan Services, LLC, Aurora Bank FSB, Mortgage Electronic Registration Systems, Inc., and MERSCORP, Inc.'s (collectively "Bank Defendants") second Motion to Dismiss Amended Complaint [Docket No. 127]. Additionally, the Court heard Plaintiffs Kevin M. Murphy and Kathleen K. Murphy's (collectively "Murphy Plaintiffs") Motion to Sever [Docket No. 160]. For the reasons set forth below, Bank Defendants' Motion to Dismiss is granted, and Murphy Plaintiffs' Motion to Sever is denied. Finally, the Court heard Bank Defendants and William B. Butler's ("Butler") arguments regarding this Court's reconsideration of the amount of Butler's sanctions.
Plaintiffs are homeowners and mortgagors with residential properties in four Minnesota counties. Am. Compl. [Docket No. 6] ¶¶ 1-8. Plaintiffs allege that they executed original promissory notes and mortgages with an entity different than the Bank Defendants, and that Bank Defendants are not in possession of Plaintiffs' promissory notes because they securitized and sold the notes. Id . ¶¶ 17-19, 27, 30. Plaintiffs' Amended Complaint claims that without possession of these promissory notes, Bank Defendants' foreclosures by advertisement of Plaintiffs' properties are unlawful. Id . ¶¶ 35, 37. In addition, Plaintiffs allege Defendants' foreclosures by advertisement are invalid because the "Notices of Pendency, Powers of Attorney, and Mortgage Assignments were not executed by an authorized individual" and the "Assignments of Plaintiffs' Mortgages were invalid." Id . ¶¶ 57(f) and (g).
A. First Motion to Dismiss
On January 12, 2012, Defendants' first motion to dismiss Plaintiffs' amended complaint was granted. Murphy v. Aurora Loan Servs., LLC, No. 11-2750, 2012 U.S. Dist. LEXIS 3941 (D. Minn. Jan. 12, 2012) (Montgomery, J.). The Court ruled Defendant Wilford & Geske, P.A. was fraudulently joined. Despite receiving admonishment in several other similar cases, Butler advanced an invalid "show me the note" theory of the case, in which an entity must hold and exhibit the promissory note as well as the mortgage deed to legally foreclose on a property. Id. at *5. The Court found under Rule 12(b)(6) of the Federal Rules of Civil Procedure, Plaintiffs had failed to state a claim against the Bank Defendants. Id . Plaintiffs appealed. While the appeal was pending, Bank Defendants sought sanctions against Butler for bad faith conduct in litigating this suit pursuant to Rule 11 of the Federal Rules of Civil Procedure and 28 U.S.C. § 1927. Magistrate Judge Jeffrey J. Keyes found Rule 11 sanctions were warranted. "[I]t appears that there was little, if any, factual basis for Plaintiffs' show me the note' claims." Murphy v. Aurora Loan Servs., LLC , 859 F.Supp.2d 1016, 1020 (D. Minn. 2012). "Moreover, there is nothing that supports that Plaintiffs' theories are warranted by existing law." Id . Finally, Judge Keyes held:
What makes matters particularly worse in Mr. Butler's pursuit of these discredited legal theories, is that he does not make a good faith effort to argue for a change in the law. Instead he continues to refuse to acknowledge that these "show me the note" claims are based on a "legal fallacy."
Id. at 1020-21. Among other reasons for the sanctions, Judge Keyes determined a sanction of $50, 000 would partially reimburse Bank Defendants' fees and costs in defending this baseless litigation, but its primary purpose would be to "deter baseless filings" in accordance with Rule 11. Id. at 1022 (citing Cooter & Gell v. Hartmarx Corp. , 496 U.S. 384, 393 (1990)). Butler objected to Judge Keyes' Rule 11 sanction. On July 10, 2012, this Court overruled his objections and affirmed Judge Keyes' Order. See Murphy v. Aurora Loan Servs., LLC, No. 11-2750, slip op. (D. Minn. July 10, 2012) [Docket No. 89].
On November 8, 2012, the Eighth Circuit Court of Appeals affirmed dismissal of all Plaintiffs' claims based on "show me the note" theory. See Murphy v. Aurora Loan Servs., LLC , 699 F.3d 1027 (8th Cir. 2012) (the "show me the note" theory is precluded by Jackson v. Mortg. Elec. Reg. Sys., Inc. , 770 N.W.2d 487, 498-501 (Minn. 2009)). However, the Eighth Circuit determined that the parties had not briefed and the District Court had not considered possible alternative theories which could not be subsumed under the "show me the note" theory that could be argued from Amended Complaint, ¶¶ 57(f) and (g). Therefore, the case was remanded on this limited basis "to allow the district court to address the matter in the first instance." Id. at 1034. In a separate, parallel appeal, the Eighth Circuit affirmed the District Court's decision to sanction Butler. Murphy v. Aurora Loan Servs., LLC, No. ...