Three Texas counties, including the two that contain Dallas and Houston, were rebuffed on Thursday in their effort to bring a class action on behalf of all Texas counties against Bank of America Corporation and Mortgage Electronic Registration Systems Inc. The three counties accused BofA and MERS of using an electronic registry to avoid paying nearly $100 million in mortgage filing fees. But a U.S. district court judge in Dallas ruled that certifying a class would mean that other Texas counties would automatically join the suit, which they can’t do under state law.
MERS is facing several similar suits throughout the country accusing it of using its registry to cheat various local governments out of billions of dollars in mortgage registration fees. MERS was created by several banks, including BofA. Its system was designed to facilitate mortgage-backed securities transactions by allowing financial institutions to bypass the offices of county recorders and the fees that these offices charge every time that a mortgage is moved into and out of a security.
MERS failed to get the Texas suit—which was brought by Dallas, Harris, and Brazoria counties—dismissed when U.S. district court judge Reed O’Connor in Dallas ruled in May that there was sufficient evidence to proceed. But MERS succeeded on Thursday, when O’Connor found that the class that the plaintiffs were proposing—which would have potentially consisted of all 254 counties in Texas—was illegal under federal law. The judge struck all class allegations from the suit, and also cancelled a class certification hearing that was scheduled to begin on Wednesday. The plaintiff counties are represented by Malouf & Nockels, while BofA is being defended by Goodwin Procter and Fulbright & Jaworski, and MERS by Morgan, Lewis & Bockius. 
In a 22-page opinion, O’Connor ruled that the three plaintiff counties could not represent a class consisting of other similarly situated counties in Texas. He noted that Texas law—which covers everything from the process of hiring an attorney, to the amount of oversight that a county retains once a private lawyer is in place—regulates the rights of counties in hiring private counsel for class actions. But he also noted that under federal law, similarly situated class members automatically join a certified class action unless they opt-out. In this case, O’Connor found that if he certified a class, other Texas counties would automatically join the suit, which they can’t  because of the state’s stringent rules regarding representation.
“The default position of each county is that it is not in the class until it successfully completes the procedural requirements for retaining outside counsel,” wrote O’Connor. “Accordingly, the Court finds that Plaintiffs seek to create an ‘opt in’ class, which is contrary to the express provisions of [the federal rules of civil procedure].” O’Connor, however, did not rule on BofA’s and MERS’s broader argument that Texas law prohibits class actions consisting of all 254 counties, because each county was sovereign.
In addition to the Texas suit, MERS is facing suits in Ohio, Illinois, Pennsylvania, Alabama, Missouri, and New York. MERS got a purported class action in Kentucky thrown out in February 2011, and secured the dismissals of three other purported class action suits: one in Florida in June, one in Iowa in August, and one in Arkansas in September. 
Robert Brochin of Morgan Lewis is representing MERS on all of its recording fee suits throughout the country, and Thomas Hefferon of Goodwin Procter and Rodney Acker of Fulbright & Jaworski are defending BofA. Stephen Malouf of Malouf & Nockels, which is based in Dallas, is representing the three plaintiff Texas counties. None of the lawyers responded to a request for comment.