Lawyer slapped with $50,000 sanction

Butler ‘exploiting’ clients, judge says

When Minneapolis lawyer William Butler said, repeatedly, “show me the note,” U.S. District Court Judge Patrick Schiltz replied, “show me the money.”

Schiltz sanctioned Butler $50,000 on March 29 for what the judge described as repeated frivolous lawsuits, brazen delay tactics and judge-shopping, apparently, according to the judge,  for the actual purpose of collecting fees from clients who are thereby given time to live in their houses without making payments.

A large sanction is necessary to deter Butler from pursuing this illegitimate business model, Schiltz said.

“The amount of this sanction is based on a number of factors, including the extraordinarily egregious and brazen nature of Butler’s conduct; the extraordinary burden that he has imposed on the Court and on the opposing parties; the fact that he has not been deterred by warnings or motions for sanctions either in this case or in other pending cases; the fact that he was not deterred by this Court’s show-cause order from filing an almost entirely frivolous remand motion in violation of the local rules and then ambushing his opponents in the course of briefing that motion; and the harm that he has done to his own clients, both by exploiting them financially and by obscuring (and possibly causing them to lose) any legitimate claims they may have had,” Schiltz wrote.

Butler and his attorneys could not be reached for comment.

Challenge to MERS

The instant case involved 20 plaintiffs against nine financial institutions, including Mortgage Electronic Registration Systems, Inc. and the Burnsville law firm of Shapiro & Zielke, which represents mortgagees.

The case concerns the common practice of securitizing mortgages by having them held by and recorded in the name of a nominal mortgagee such as MERS rather than the holder of the promissory note.  This allows the mortgages to be repeatedly sold without each sale being recorded on the title.

The plaintiffs argued that if the entity that holds their mortgage, usually MERS, is not the entity that holds the promissory note, the mortgage and/or the foreclosure of the mortgage is invalid.

The argument is frivolous, Schiltz said, having been rejected by the Minnesota Supreme Court, the Eighth U.S. Circuit Court of Appeals, and every federal judge in Minnesota who has addressed the argument.

“All of these courts have held –clearly, repeatedly, and recently—that, under Minnesota law, the entity that holds the mortgage can foreclose on the mortgage even if that entity does not also hold the note,” Schiultz wrote.

The Minnesota Supreme Court said in 2009 in Jackson v. Mortgage Electronic Registration Systems Inc. that a party can hold legal title to the security instrument without holding an interest in the promissory note, Schiltz wrote.  Butler’s argument that Jackson should be read narrowly to hold only that a transfer of a note does not need to be recorded on the title of the property pledged as security for the note has been flatly rejected, the judge said.

‘Cottage industry’

Although some “show-me-the-note” suits are brought by pro se homeowners, Butler has made a “cottage industry” of frivolous actions, Schiltz said.  This case is one of nearly 30 that his law firm, Butler Liberty Law, has filed. Schiltz said that Butler assembles a group of plaintiffs, “gins up” claims against multiple defendants, packages them into a single state-court action, and fraudulently joins a single nondiverse defendant, typically a law firm, in an attempt to block removal to federal court.

Schiltz said Butler also dismisses and re-files cases in an attempt to forum shop or judge shop.  Butler then gives the new case a different caption by reordering or substituting a plaintiff, the judge said.

Referring to Butler’s “cottage industry,” Schiltz said the sanction were prompted by more than just this case.

Lawyers for the financial institutions and Shapiro and Zielke could not be reached for comment.

In a brief, lawyers for the firm and the other defense lawyers argued that sanctions may be ordered under Rule 11, 28 U.S.C. sec.1927, and the court’s inherent powers.  They argue that Butler’s arguments are neither warranted under existing law or a good-faith, non-frivolous effort to change existing law. “He simply refuses to respect the court rulings against him,” the brief said.

Further, it said, “Defendants take no pleasure in seeking sanctions against a member of the Bar. But they also take no pleasure in defending—and should not be required to defend—repetitive baseless litigation at their own expense. And the Court is rightly concerned about the clients and prospective clients of plaintiffs’ counsel, who may have hired him based on his advocacy of a legal theory that has been baseless since at least 2009.”