Alert March 19, 2013

Eighth Circuit Affirms Rejection of Show-Me-the-Note Theory

The United States Court of Appeals for the Eighth Circuit rejected another action premised upon the largely discredited "show-me-the-note" theory of challenging foreclosures, and imposing sanctions against an attorney who continued to pursue the defunct theory. In the underlying case, plaintiffs, a group of mortgage loan borrowers, asserted claims for quiet title and slander of title after their mortgagee, defendant, initiated foreclosure proceedings under Minnesota’s non-judicial foreclosure statute. Plaintiffs claimed the foreclosure proceedings were invalid because the mortgagee lacked legal title to their mortgage. The district court dismissed the suit and imposed sanctions on plaintiffs’ counsel.

Highlighting its increasing impatience for such suits, the Eight Circuit affirmed the district court’s dismissal because it was based on the flawed "show-me-the-note" theory—a theory which had been already repudiated several times by the Eighth Circuit (see September 5, 2012 Alert). The Court also found the borrowers’ slander of title claim equally flawed—that claim was based on the theory that recorded foreclosure notices and mortgage assignments incorrectly identified the holder of their mortgages. The Court held the claim could not survive because slander of title requires a showing of malice, and the pleadings contained nothing but "naked assertions" that defendants lacked legal title to the mortgages. Notably, the Eighth Circuit admonished plaintiffs’ counsel for "the duplication of the claims" rejected in another case filed by the same counsel, Murphy v. Aurora Loans Servs., LLC, 699 F.3d 1027 (8th Cir. 2012), also based on the "show-me-the-note" theory. A fact which made counsel’s conduct "all the more egregious." Equally contributing to the imposition of sanctions by the Court was counsel’s "trite attempts to avoid federal court by engaging in "fraudulent joinder."