Supreme Court, Appellate Division, Second Department, New York. MERSCORP, INC.

and Mortgage Electronic Registration Systems, Inc., PetitionersAppellants, v. Edward P. ROMAINE, as Clerk of the County of Suffolk, State of New York, County of Suffolk, State of New York, Respondents-Respondents. No. 2001-04792. Suffolk County Clerk's Index No. 9688/01. December 17, 2001. Respondents' Brief Of Counsel: Richard C. Cahn, Brian T. Egan Cahn Wishod & Knauer, LLP, Attorneys for Respondents-Respondents, 425 Broadhollow Road, Suite 315, Melville, New York 11747, (631) 752-1600 *i TABLE OF CONTENTS Table of Cases and Authorities ... ii Preliminary Statement ... 1 Statement of Facts ... 2 The Hybrid/Proceeding Action ... 4 Point I Appellants Failed to Satisfy the Rigorous Standard for Grant of a Preliminary Injunction ... 4 Point II If Respondent Romaine's Duty to Record MERS Mortgages is Ministerial, the Appellants are not Entitled to Relief in the Nature of Mandamus to Compel Because There is No "Clear Legal Right" to the Relief Sought by Them ... 6 Point III The Obligation of the Respondent Romaine to Record Mortgages is Ministerial Only to the Extent That Such Instruments Are Presented "As a Conveyance Perfect in Form" Which They Were Not in This Case ... 8 Point IV MERS Mortgages are Improper Under Established Law ... 10 Point V The Recording Statutes Require County Clerks to Record and Index Mortgages Against the Names of the Mortgagees Only ... 12

Point VI Naming a Nominee for the Original Lender "and Lender's Successors and Assigns" is Ineffective and Against Public Policy ... 15 Point VII The County Clerk's Reliance on the Attorney General's Opinion is Not Arbitrary ... 18 Conclusion ... 19 *ii TABLE OF CASES AND AUTHORITIES FEDERAL CASES Copper King, Inc. v. Patterson, 918 F.2d 1404, 1408-09 (9th Cir. 1990) ... 18 In re Cushman Bakery, 526 F.2d 23 (1st Cir. 1975) ... 11, 12 In re Fried Furniture Corp., 293 F.Supp. 92 (EDNY 1968); aff'd, 407 F.2d 360 (2d Cir. 1969) ... 17, 18 STATE CASES Aetna Insurance Co. v. Capasso, 75 N.Y.2d 860, 552 N.Y.S. 918 (1990) ... 4 Amherst Factors v. Kochenburger, 4 N.Y.2d 203, 173 N.Y.2d 570 (1958) ... 17 Ass'n of Surrogate and Supreme Court Reporters Within the State of N.Y. v. Bartlett, 40 N.Y.2d 571, 574, 388 N.Y.S.2d 882, 884 (1976) ... 7 Baccari v. DeSanti, 70 A.D.2d 198, 203, 431 N.Y.S.2d 829, 833 (2d Dept. 1979) ... 8 Beak v. Walts, 42 N.Y.S.2d 652, 653 (4th Dept. 1943) ... 11 Cody v. Anthony Fabiano and Sons, Inc., 667 N.Y.S.2d 446 (3d Dept. 1988) ... 4 Deak v. Heathcote Assoc., 595 N.Y.S.2d 556 (2d Dept. 1993) ... 4 Flyer v. Sullivan, 284 A.D. 697, 698, 134 N.Y.S.2d 521, 523 (1st Dept. 1954) ... 10 Jones v. Beame, 45 N.Y.2d 402, 409, 408 N.Y.S.2d 449 (1978) ... 10 Kluge v. Fugazy, 145 A.D.2d 537, 536 N.Y.S.2d 92 (2d Dept. 1988) ... 10, 12 Kuppersmith v. Dowling, 93 N.Y.2d 90, 96 688 N.Y.S.2d 96, 99 (1999) ... 19 L&C Hair Designers, Inc. v. Balestrieri, 277 A.D.2d 427, 716 N.Y.S.2d 602 (2d Dept. 2000) ... 4 Marburg v. Cole, 286 N.Y. 202, 212 (1941) ... 19 Matter of Abrams v. N.Y. City Trans. Auth., 39 N.Y.2d 990, 992, 387 N.Y.S.2d 235 (1976) ... 10

*iii McCain v. Koch (70 N.Y.2d 109, 517, N.Y.S.2d 918, 920 (1987) ... 5, 6 Merritt v. Bartholich, 36 N.Y. 44 (1867) ... 10 Mindel v. Educational Testing Service, 147 Misc.2d 968, 559 N.Y.S.2d 95, 98 (Sup.Ct., N.Y. Cty., 1990) ... 5 Moore v. Leaseway Transportation Corp., 65 A.D. 2d 697, 698, 409 N.Y.S.2d 746, 747 (2d Dept. 1978) ... 17 People v. Nash, 3 Hun. 535, aff'd, 62 N.Y. 484 (1875) ... 19 Putnam v. Stuart, 97 N.Y. 411 (1884) ... 8, 9 Weltman v. Kotlar, 124 A.D. 494, 108 N.Y.S. 952 (2d Dept. 1908) ... 17 STATE STATUTES CPLR Article 78 ... 4, 7 CPLR 3001 ... 4

CPLR 7701-8000 ... 7 CPLR 7801 ... 7 254 ... 12 316 ... 7, 12, 13 316-a ... 9, 12, 13 321 ... 12, 18

N.Y. Real Property Law N.Y. Real Property Law N.Y. Real Property Law N.Y. Real Property Law N.Y. Statutes OTHER

129(a) ... 9

4 Op. State Compt. 352 ... 19 7B McKinney's Consolidated Laws of N.Y. Annotated ... 7 *iv Alexander Practice Commentaries ... 7 Friedman, 2 Contracts and Conveyances of Real Property, General Obligations Law Article 5 ... 15 General Obligations Law 5-1502(A) ... 16 6.3(b) ... 10

N.Y. Attorney General's Informal Opinion No. 2001-2 ... passim 77 N.Y. Jur.2d Mortgages and Deeds of Trust, 77 N.Y. Jur.2d Mortgages and Deeds of Trust, Preliminary Statement Respondents, Edward P. Romaine, as Clerk of the County of Suffolk, State of New York ("County Clerk") and the County of Suffolk ("Respondents") submit this brief in response to the brief of the Petitioners-Appellants, Escort., Inc. and Mortgage Electronic Registration Systems, Inc. ("MERS" or "Appellants") and in support of 2 ... 11 46 ... 11

affirmance of the May 15, 2001 Order of Supreme Court, Suffolk County (Catterson, J.), which vacated a temporary restraining order that compelled Suffolk County Clerk to accept mortgages and other instruments for recording which designated MERS in its capacity as nominee as the mortgagee for recording purposes only. This Court subsequently granted Appellants' motion to reinstate the temporary restraining order, and continued it in force until the determination of this appeal or earlier termination of the case in the IAS Court. *2 Statement of Facts As appears by the Petition, Affidavits and exhibits submitted by both sides to the IAS Court, MERS was created for the specific purpose of avoiding the recording in County Clerks' or Recorders' offices throughout the nation of intermediate assignments of mortgages to a succession of assignee financial institutions. In contrast to the statutory requirements, and tradition, custom and practice for well over a century in this State and others in which a lender extending a loan secured by a mortgage on real property is universally described as "the mortgagee," MERS has prepared mortgages in which it is described as the mortgagee, notwithstanding that it is not the lender and is apparently not qualified or registered with the relevant regulatory agencies to act as a lender. By presenting for recording and indexing mortgage instruments that describe itself as "acting solely as a nominee for lender and lender's successors and assigns," and directing that, "For Purposes of Recording This Mortgage, MERS is the Mortgagee of Record" (108), [FN1] MERS has purported to create a new definition of the word "mortgagee," and a new category of party to a mortgage transaction: a mortgagee that has no interest in the underlying debt or obligation. FN1. Numbers in parentheses refer to pages of the Record on Appeal. The procedure devised by MERS and its supporters is unabashedly designed to avoid paying the statutory recording fees that would be required were assignments of the mortgage instruments from one qualified lending institution to another to be recorded in the County Clerk's offices. MERS's objective is "to register every mortgage loan in the United States on the MERS system." *3 In creating a private recording system, however, MERS withholds from public scrutiny and record the identities of all successive assignees of any mortgage instrument. Moreover, although its written materials claim that its members can call a toll-free "800" telephone number to obtain information about such assignments, no statement is contained in the record from which it could be determined whether non-MERS members could obtain this information or whether that information is free of charge, or is likely to be free of charge in the future. It is undisputed that MERS is a "private, for-profit corporation owned by members of the real estate finance industry" (312). MERS has not only privatized the statutory public recording system, but has also "privatized" an unknown portion of the funds to be derived therefrom. Recording fees charged by the Respondent Romaine's office are governed by State and local law, and those funds are intended to be collected for the benefit of the public, among other things, to furnish revenue to the State, and to support and continue a central, singular, official public recording system which has been created to benefit the public. For a period of time pending legal advice, Respondent Romaine recorded MERS's mortgages. However, shortly after April 6, 2001, when the Suffolk County Attorney forwarded New York Attorney General's Informal Opinion No. 2001-2 to him and advised him to comply with it, he announced that he would cease accepting MERS mortgages commencing on May 1, 2001 (68).

A number of other County Clerks thereafter determined to follow the Attorney General's opinion (230, 245, 248, 251). The Appellants immediately commenced this *4 proceeding to compel Respondents to accept MERS's mortgages for recording, and obtained issuance of an order to show cause containing a temporary restraining order (50-51). This Hybrid Proceeding/Action This proceeding seeks relief pursuant to Article 78 and Section 3001. It is thus a hybrid proceeding/action, seeking both to compel the Respondent to accept MERS mortgages for recording and indexing against the MERS name, and a declaratory judgment declaring that those mortgages are valid and consistent with State law. To the extent that this hybrid proceeding is an Article 78 proceeding, it is in the nature of mandamus to compel the County Clerk to perform what the Appellants claim is the Respondent's "ministerial duty" of recording the MERS mortgages. Whether the Respondent's duty is ministerial or otherwise, the IAS Court properly vacated the temporary restraining order and denied Appellants' motion for a preliminary injunction (47). Point I Appellants failed to Satisfy the Rigorous Standard for Grant of a Preliminary Injunction It is well established that to qualify for preliminary injunctive relief, a party "must show a probability of success, danger of irreparable injury in the absence of an injunction, and a balance of the equities in their favor" (Aetna Insurance Co. v. Capasso, 75 N.Y.2d 860, 552 N.Y.S. 918 [1990]; L&C Hair Designers, Inc. v. Balestrieri, 277 A.D.2d 427, 716 N.Y.S.2d 602 [2d Dept. 2000]). However, equally well established is that equity does not support a petitioner where its hardship is self-imposed; injunctive relief cannot and should not be granted to protect a petitioner from such self-created hardship. (Cody v. Anthony Fabiano and Sons, Inc., 667 N.Y.S.2d 446 [3rd Dept., 1998]; Deak v. Heathcote Assoc., 595 N.Y.S.2d 556 [2d Dept. 1993] *5 holding, as Petitioner "was aware of the restriction, [] any hardship on the Petitioner was self-created and does not tip the balance of the equities.") In this case, the Appellants knew the recording requirements and the well-established law in New York regarding the denomination of proper parties to a mortgage. Appellants' "innovations" in this area are not an adequate basis to compel the County Clerk to accept their unorthodox and confusing instruments, of uncertain validity. Appellant relies upon Mindel v. Educational Testing Service, (147 Misc.2d 968, 559 N.Y.S.2d 95, 98 (Sup.Ct, N.Y. Cty., 1990) for the proposition that "loss of [an] opportunity due to the passage of time... is an irreparable harm" which may be remedied by the grant of a preliminary injunction."' However, Mindel is easily distinguishable from the case at bar. The court in Mindel granted the Appellant's request for a preliminary injunction to compel the defendant testing service to schedule another college entrance examination following a botched administration of the exam. In that case, the Appellant sought to remedy a hardship which was imposed upon her by the defendants (an aberrational testing experience). In this case, the Appellants imposed their own hardship on themselves by attempting to implement a system without consultation or permission of the defendants. This case is far different, in that Mindel had absolutely no part in causing her injury. Equally unpersuasive is the Appellant's reliance on McCain v. Koch (70 N.Y.2d 109, 517 N.Y.S.2d 918, 920 [1987]). In McCain, the Court of

Appeals held that the Supreme Court had the power to issue a temporary injunction requiring the New York City Departments of Social Services and Housing, Preservation and Development, which had undertaken to provide emergency housing for homeless families with children, to provide housing which satisfied *6 minimum standards of sanitation, safety and decency. The McCain case is radically different from the case at bar, as the County Clerk is more than satisfactorily performing his constitutionally mandated obligation to maintain the mortgage records of the County of Suffolk. In McCain, the Court of Appeals found that the New York City departments had failed to provide even the minimum of required services. The Court of Appeals held that "[t]here is no question that in a proper case Supreme Court has powers as a court of equity to grant a temporary injunction which mandates specific conduct by municipal agencies." However, the Suffolk County Clerk is providing and fulfilling his statutorily mandated obligations. The Appellants here go beyond that, and call for judicial assistance in compelling the Clerk to perform a service above and beyond his required obligation, and compel the acceptance of their novel and legislatively unreviewed reformation of basic mortgage documents and questionable redefining of long-understood statutory language. No entitlement to injunctive relief has been demonstrated, and it was properly denied by the IAS Court. Point II If Respondent Romaine's Duty to Record MERS Mortgages is Ministerial, the Appellants Are Not Entitled to Relief in the Nature of Mandamus To Compel Because There is No "Clear Legal Right" to the Relief Sought By Them Appellants claim that the duty to record mortgage instruments, which is imposed upon the County Clerks of all counties in New York (and upon the Recorder in New York City), is ministerial. We dispute that characterization of the Respondent's function. (See, Point III, infra.) If, however, this Court finds Appellants are correct, then and only then would a proceeding in the nature of mandamus to compel the performance of that ministerial act lie. *7 However, as the IAS Court properly found, Appellants did not show a "clear legal right" to the requested relief, and their purported right to performance is clouded "by reasonable doubt or controversy," mandating denial of their petition. Ass'n of Surrogate and Supreme Court Reporters Within the State of N.Y. v. Bartlett, 40 N.Y.2d 571, 574, 388 N.Y.S.2d 882, 884 (1976); CPLR 7801; Alexander Practice Commentaries; Article 78; C7801:3, 7B McKinney's Consolidated Laws of N.Y. Annotated; Civil Practice Law and Rules 7701-8000 at p. 30. In light of the fact that at least five County Attorneys and the Attorney General of New York - the latter being the highest ranking law officer of the State - have opined that the "plain meaning of N.Y. Real Property Law 316 precludes MERS' effort to designate itself as mortgagee solely for recording purposes," and that MERS's effort "also undermines the general purposes of the Real Property Law's recording provisions," because "MERS' name cannot substitute for the name of the actual mortgagee in the County's general index for recorded mortgages" (69), the matter is not free from "reasonable doubt or controversy," and the Appellants did not show a "clear legal right" to the relief requested. The temporary restraining order, therefore, was properly vacated. As will be seen subsequently in this Memorandum, the Attorney General's opinion (68) and the opinions of the County Attorneys of Suffolk (289), Seneca (321), Sullivan (308), Dutchess (314) and Lewis (316) Counties are particularly persuasive in showing that the MERS mortgages are not entitled to be recorded or indexed under the name of MERS, instead of

the name of the actual mortgagee. *8 Point III The Obligation of the Respondent Romaine To Record Mortgages is Ministerial Only to the Extent That Such Instruments are Presented "As A Conveyance Perfect In Form" Which They Were Not in This Case Appellants rely upon Putnam v, Stuart, 97 N.Y. 411 (1884) and Baccari v. DeSanti, 70 A.D.2d 198, 203, 431 N.Y.S.2d 829, 833 (2d Dept. 1979) for the general proposition that the County Clerk's "duty to record the conveyance instruments in the words as presented to him" is merely ministerial. Putnam, however, does not stand for that proposition. In that case, the Court of Appeals reviewed a County Clerk's action in recording only the part of a conveyance that had not previously been recorded, and, as to the remainder, referred to it in a memorandum made a part of the record, that specifically recited by book and page the recording information where the previously recorded conveyance could be found. The Court found that action to be "within the scope of the incidental powers conferred upon the clerk." Ibid. The Court further made it clear that the obligation of the Clerk to record mortgages is ministerial only to the extent that such instruments are presented as "a conveyance perfect inform to convey the interest intended to be effective, and unmistakably intelligible in its existing state, properly acknowledged," (id.) (emphasis added). This is not the case here, as the conveyance is not "perfect in form" and it is not "unmistakably intelligible in its existing state," as the MERS designation clouds and creates confusion as to the identity of the true mortgagee. In this case, Respondent Romaine was directed to follow the advice and instruction of the Attorney General by his own County Attorney (289). These and other public law officers have concluded that MERS, despite its self-conferred designation, is not the *9 "mortgagee" in these instruments. Since the recording provisions of the Real Property Law, insofar as pertinent (including Real Property Law 316-a, applicable to Suffolk County), require the Respondent to receive and record documents naming the mortgagee, and to create "mortgagee-mortgagor" and "mortgagor-mortgagee" indexes, and the legal opinions given to him clearly state that MERS is not a "mortgagee," his determination to heed that advice and reject such instruments was rational. While a mortgage may be a type of contract that parties may negotiate, there is no requirement in the law which mandates that the County Clerk accept for filing a mortgage which does not satisfy the basic legal requirements of identifying the parties, or mortgages which are otherwise not in conformance with the recording requirements of the Clerk's office. For the County Clerk to accept a MERS mortgage for recording and to index it against MERS's name, would transgress the Court of Appeals' strictures in Putnam that he record only conveyances that are "perfect in form" and "unmistakably intelligible" in their "existing state." It also undermines his obligation to maintain an open and accessible record for the public, which is the essence of the recording system. Construction of a statute by a court "is often aided by the way a statute is interpreted or understood by those whose business it is to operate thereunder," Statutes, 129(a). The affidavits of the Clerks of Nassau, Seneca and Schenectady Counties, and the fact that other County Clerks, guided by the opinions of the Attorney General and their own County Attorneys, concluded prior to this Court's June 19, 2001

order, that they may not treat MERS as a mortgagee for purposes of the recording statutes, is a powerful argument against any grant of relief to the Appellants. It is respectfully submitted that this Court should affirm the IAS Court's *10 declination to change the law, see, Jones v. Beame, 45 N.Y.2d 402, 409, 408 N.Y.S.2d 449 [1978] (Breitel, Ch.J.), but should instead hold that there are "questions of broad legislative and administrative policy beyond the scope of judicial correction" (45 N.Y.2d at 408). We submit that the decision to not accept MERS mortgages for filing is a "question[] of judgment, discretion, allocation of resources and priorities inappropriate for resolution in the judicial areas" and is better left to the State Legislature, should it care to change the recording statutes. See, Matter of Abrams v, N. Y. City Trans. Auth., 39 N.Y.2d 990, 992, 387 N.Y.S.2d 235 (1976). Point IV MERS Mortgages are Improper Under Established Law It is long established in New York that a lien cannot be separated from the debt that it secures. Kluge v. Fugazy, 145 A.D.2d 537, 536 N.Y.S.2d 92 (2d Dept. 1988). The corollary to that maxim is that a lien cannot be assigned without the underlying debt. Such an assignment of the lien without the debt is nil legatum [FN2]. (Friedman, 2 Contracts and Conveyances of Real Property, 6.3(b), p. 939, noting, "an assignment of a mortgage or other secured agreement, without including the mortgage note or bond or other evidence of the debt, is a nullity and vests no rights to the assignee.") For well over a century, the courts of New York have reaffirmed the underlying principle that "a transfer of the mortgage without the debt is a nullity, and no interest is acquired by it" (Merritt v, Bartholich, 36 N.Y. 44 [1867]); accord, Kluge v. Fugazy, [supra], holding "foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity"; Flyer v. Sullivan, 284 A.D. 697, 698, 134 N.Y.S.2d 521, 523 [1st Dept. 1954] holding, "The assignment *11 by a mortgagee of the mortgage lien in the land, without an assignment of the debt, is considered in law as a nullity"; Beak v. Walts, 42 N.Y.S.2d 652, 653 [4th Dept. 1943], holding, "the transfer of a mortgage without the debt is void"). FN2. Of no legal effect. As noted in N. Y. Jur.2d, "a mortgage cannot be separated from the debt and exist independently of it" (77 N.Y.Jur.2d 2, p. 374). The law in New York is clear: the mortgage and debt are inextricably intertwined and absolutely cannot be separated without nullifying the underlying obligation. However, such separation is precisely what MERS seeks to do, in presenting mortgages naming it "as mortgagee," where the instrument itself indicates that the lender is the real party in interest. MERS's stated intentions is to facilitate subsequent assignments, all beyond official or public scrutiny, so that the underlying obligations of these debts will continue to be owned by unnamed, and unrevealed parties. A "nominee" label is, further, contrary to the basic principles of law regarding the proper designation of parties to mortgages. As noted in New York Jurisprudence 2d, "Since an instrument cannot operate as a mortgage unless there exists as parties thereto both a mortgagor and a mortgagee, it is essential to the validity of a mortgage that the parties be plainly designated" (77 N.YJur.2d Mortgages and Deeds of Trust, 46). In In re Cushman Bakery, 526 F.2d 23 (1st Cir. 1975) (Appellants' Brief at 25), the document at issue was a financing statement, which is

inherently different from a mortgage. That a financing statement is radically different from a mortgage is dramatized by the First Circuit's reliance on cases treating various Uniform Commercial Code provisions; the UCC does not require disclosure of the name of the real party-ininterest in a secured transaction, (526 F.2d *12 23 at 29, citing UCC 9208); the sole purpose of filing a financing statement under the UCC "is to provide a mechanism by which specific collateral is encumbered and, hence, [] the filing system was not designed to learn the uses to which the credit had been put or the nature of the obligation secured." Cushman, supra, 526 F.2d at 29. Review of these cases reveal that the law of secured transactions, attempted to be "shoe-horned" into this area by the Appellants is inapplicable and contradictory to the established law of New York. Point V The Recording Statutes Require County Clerks to Record and Index Mortgages Against the Names of the Mortgagees Only Real Property Law 254, 316, 316-a and 321 constitute a comprehensive body of State legislation relating to the real property instrument recording system. As correctly noted in the Attorney General's opinion, that system is designed to give notice to the public of the identities of those having interests in real property. Attorney General Informal Opinion No. 2001-2 at 2-3. For private entities to create a privately maintained record of assignments of interests in mortgages that can only be accessed by selected individuals cannot substitute for the public recording system prescribed by the State statutes. Section 254 of the Real Property Law makes it clear that "mortgagee" is synonymous with "party of the second part" in a mortgage instrument, i.e., the party to whom the interest in real property has been conveyed. As previously noted, there is no lawful basis upon which to separate out a beneficial interest in real property from the rights and privileges that accompany that interest. See, Kluge v. Fugazy, 536 N.Y.S.2d 92 (2d Dept. 1988). Since Section 254 makes it clear that the "mortgagee" is, and is intended to mean, the person to whom the beneficial interest in the property is transferred, an entity such as MERS which expressly *13 discloses that it does not, and will not, have an interest in the real property cannot be properly designated as a "mortgagee." Section 316 of the Real Property Law requires recording officers to provide books for the making of general indexes and specifically requires lists showing "mortgagors," "mortgagees" and "assignees." By definition, an index cannot be prepared by a County Clerk showing an assignee that has not been disclosed in the instrument presented to the County Clerk for recording. Similarly, Section 316-a, applicable to Suffolk County, requires town indexes of conveyances and mortgages to be substantially in the form of Schedules C and D annexed to and incorporated into as part of the legislation. Those schedules, which were presented to the IAS Court (311), expressly require indexes to be by the names of "mortgagors" and "mortgagees." The Respondent Romaine properly followed the Attorney General's opinion that a party such as MERS that has no interest in the property cannot be considered a "mortgagee." The State Legislature long ago established the recording system, consciously intending to create a centralized public database relating to real property situate within each county, so that individuals will

have confidence that the official record of title to any interest in real property is maintained in a specific public office whose custodian is a public officer charged with that responsibility by his oath. By declaring that the County Clerk's office is the only authorized repository of recorded interests in real property, the public is assured that it can rely upon the information that appears in that office. If information does not appear in that office, it need not be taken into account. If information does appear in the records of that office, the Legislature has mandated that it may be relied upon in all respects. If words (such as *14 "mortgagee") are employed in documents recorded in that office, and in indexes of those documents maintained there, the public is similarly entitled to rely upon the plain and established meaning of those words. No private individuals or entities are authorized to change the recording statutes of the State of New York or, in the words of the Attorney General, "undermine []" those statutes by creating a parallel or substitute private system of uncertain accuracy, reliability, continuity and stability (69). No matter how good or bad MERS's system may ultimately prove to be, MERS may not substitute its own system for the long-existing system established under the public recording statutes, unless the New York State Legislature, as a matter of public policy, decides to authorize such systems (with such safeguards as the Legislature may wish to create). In short, MERS's remedy is legislative and not judicial, and this proceeding must fail for these reasons as well. Appellants assert that there is no prohibition in the law against the use of nominees. We shall address that argument in the next Point. *15 Point VI Naming a Nominee for the Original Lender "and Lender's Successors and Assigns" is Ineffective and Against Public Policy MERS's designation as a nominee for not yet designated "successors and assigns" of the original lender, is another unorthodox and legally deficient procedure that it is following, and proposes to continue. That highly questionable designation was clearly adopted by MERS because its entire business plan cannot work if the traditional form of nominee arrangement - designating a nominee for a specific, named, party - is entered into. See, General Obligations Law Article 5. The traditional arrangement as applied to real property transactions allows the mortgagee, having a present interest in property, to designate a nominee in a recorded document which clearly states the name of the principal, and thereby makes the public record clear. When a debt secured by a mortgage is to be paid, payment to the nominee may safely be made in lieu of payment to the nominee's disclosed principal. Similarly, the filing of a satisfaction executed by a nominee for a specifically designated principal - assuming all of the nomination documents have been recorded and the named principals therefore appear of record - can be relied upon by one seeking to clear encumbrances from the property. However, this is not the system that MERS is attempting to impose upon the County Clerks of New York State. MERS has devised a mortgage instrument which purports to name MERS as the nominee, not only of the original lender, but of all future "successors and assigns" of that lender (108), notwithstanding the fact that the identity of those successor owners of the mortgage will not ordinarily be known at the time the original mortgage is executed. *16 An appointment document such as a power of attorney must clearly identify the principal and the agent. Gen. Obligations Law 5-1502(A).

[FN3] The MERS document does not clearly identify anyone except the original lender as MERS's principal (108). No one can know by examining the MERS instrument who the "successors and assigns" of the original lender are at any point in time. No one can know that by checking the public record, either. Without checking with the MERS system (assuming one is afforded access to it), and perhaps being required to pay a fee (and perhaps obtaining incorrect information), no one can know who the assignees of that original mortgage are, and that is the point of the MERS system: to avoid disclosure under the recording statutes of the intermediate assignees so that MERS will be in a position at the end of the chain to execute the satisfaction instrument on behalf of whoever the final assignee of the instrument turns out to be, without the necessity of disclosing by recordation the identities of all assignees in the chain of title, or, indeed, the identity of any such assignee. FN3. One may search Gen. Obligations Law 5-1502(A) in vain for any provision that confers upon the agent for a principal the power to act for the principal, when the principal, because he has conveyed his interest in the property as to which the agency was given, no longer has any power to act for himself. For these reasons, any person relying upon a satisfaction executed by MERS is necessarily relying upon the integrity of MERS's statement as to its authority in executing the document. Such a self-serving statement can give no confidence that MERS, in fact, possesses the authority it claims to possess: it is only from the recording of the intermediate documents in the chain that have been executed by the relevant assignors that an interested party can learn authoritatively what rights have been assigned to lending institutions and exactly what powers have been conferred upon MERS by each of these intervening assignees. *17 It is long established in this State that an agent's declarations are incompetent to establish the agency. Weltman v. Kotlar, 124 A.D. 494, 108 N.Y.S. 952 (2d Dept. 1908) ("agency cannot be proved by the declarations of the agent"); Moore v. Leaseway Transportation Corp., 65 A.D. 2d 697, 698, 409 N.Y.S.2d 746, 747 (2d Dept. 1978) ("the declarations of an alleged agent may not be shown for the purpose of proving the fact of the agency"). Recognizing MERS's self-serving declaration in a mortgage discharge instrument that it has authority to act for the ultimate lender - where only the original lender has designated MERS as a nominee in a recorded instrument - would directly transgress the rule that an agent's declarations are incompetent to establish the agency. Appellants erroneously rely on a series of cases for the proposition that "the validity of nominees in real property transactions has been routinely upheld in New York" (Petitioner's Memo of Law at 25). In Amherst Factors v. Kochenburger, 4 N.Y.2d 203, 173 N.Y.2d 570 (1958), a mortgage foreclosure action was not defeated by the fact that the recipient of a loan and the mortgagor were not the same person. The case is inapposite to the present situation, wherein a nominee having no interest in the transaction has unilaterally sought to convert itself into a mortgagee within the meaning of the recording statutes. In re Fried Furniture Corp., 293 F.Supp. 92 (E.D.N.Y. 1968), aff'd, 407 F.2d 360 (2d Cir. 1969) is also inapposite as the challenged financing instrument in that case was a financing statement under the U.C.C., covering chattels. A U.C.C. financing statement is fundamentally different from a mortgage, and the U.C.C. is specifically drafted so as not to intrude on the laws governing mortgages. In Fried Furniture, a bank and the Small Business Administration both served as secured creditors, but only the bank was listed on the financing *18 statement. Judge Weinstein reasoned that this omission was insignificant when examined in light of the federal law encouraging joint lending between

local banks and small business administrations (293 F.Supp. at 93). No such statutory relationships exist in this case between MERS and other financial institutions. Moreover, the reasoning in Fried Furniture was sharply criticized by the Ninth Circuit which rejected the holding as "unsound." (Copper King, Inc. v. Patterson, 918 F.2d 1404, 1408-09 [9th Cir. 1990]). Real Property Law 321, providing for the recording of discharge [satisfaction] of mortgages, comprehensively describes alternative situations and makes it clear that its scheme is to require all parties "designated by the mortgage or assignment to receive payment of the mortgage debt" to sign the discharge or satisfaction instrument. A person relying upon a filed satisfaction is entitled to rely upon a discharge or satisfaction instrument as having been executed by a party having the right to payment of the obligation secured by the mortgage. If the rule were otherwise, a party acquiring an interest in property encumbered by a mortgage would never know, in the absence of a recorded instrument indicating the present owner of the mortgage whether the entity actually possessing an interest in the property under that mortgage had discharged the debt. Point VII The County Clerk's Reliance on the Attorney General's Opinion is Not Arbitrary There can be no question that the Suffolk County Attorney's opinion that the Respondent should not record or index MERS mortgages under MERS's name is properly based on the opinions of the New York Attorney General, and Respondent's compliance with that opinion was neither arbitrary nor capricious. The standard for analyzing the actions (or inaction) *19 of a municipal agency is whether the decision is "so lacking in reason for its promulgation that it is essentially arbitrary." (Marburg v. Cole, 286 N.Y. 202, 212 [1941], accord, Kuppersmith v. Dowling, 93 N.Y.2d 90, 96 688 N.Y.S.2d 96, 99 [1999]). Here, the County Clerk made a reasoned determination based upon the legal opinion of the highest legal officer of this State. It is long established that the position of a County Clerk is one of "public trust" (4 Op. State Compt. 352). That sacred public trust compels the County Clerk to protect the public's recording system. For over one hundred years, the Court of Appeals has repeatedly held that the "Office of the County Clerk has the duty of making and keeping records of conveyances not for the benefit of the County or its inhabitants, but for that of the public at large." (People v. Nash, 3 Hun. 535, aff'd, 62 N.Y. 484 [1875]). This duty transcends the mere convenience of one group of subscribers to an electronic service, and mandates free and easy access to the records by the public, not just "members" of a restricted organization with electronic passwords or membership cards. Conclusion The implementation of the MERS system raises a whole host of questions, both problematical and hypothetical, and although presented as a simple change in the traditional method of conveyancing, conceals a whole host of potential problems. These issues are too complex to be decided in the context of a judicial proceeding which seeks to determine whether the Respondent Romaine abused his discretion by refusing to record MERS mortgages. Asking the question does not begin to give answers to the myriad of issues that will need to be debated if any system like the MERS system, private or public, is ever established in this State. We *20 respectfully suggest that the Courts are not the forum in which to conduct that debate, but that MERS should be relegated to its

legislative remedies. The seemingly simplistic private recording scheme of MERS is not so simple in its implications at all, because there are serious public policy implications with respect to each element in the MERS scheme, each of which result in a seismic shift in the open recording system maintained in New York for over two hundred years. As has been publicly stated in other contexts in the last several years, the courts should not legislate, but should permit significant public policy questions of the nature proposed by this case to be determined by the duly constituted legislative body of the State. For all of these reasons, the Order of the Supreme Court, Suffolk County (Catterson, J.), granted May 15, 2001, which vacated the temporary restraining order and denied Appellants' motion for a preliminary injunction should be affirmed in all respects.