Till v. Unifirst Federal Sav. and Loan Ass'n, 80-3640

Citation653 F.2d 152
Decision Date07 August 1981
Docket NumberNo. 80-3640,80-3640
PartiesGlen Kermit TILL and Bettie F. Till, Plaintiffs-Appellants, v. UNIFIRST FEDERAL SAVINGS AND LOAN ASSOCIATION and Wortman & Mann, Inc., Defendants-Appellees. . Unit A
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Gary D. Thrash, Jackson, Miss., for plaintiffs-appellants.

Daniel J. Goldberg, Matthew G. Ash, Washington, D.C., for amicus U.S. League of Sav. Associations.

Fred L. Banks, Jr., Jackson, Miss., for American Sav. and Loan League.

Brunini, Grantham, Grower & Hewes, George P. Hewes, III, Lawrence E. Allison, Jr., R. Wilson Montjoy, II, Jackson, Miss., for defendants-appellees.

Appeal from the United States District Court for the Southern District of Mississippi.

Before BROWN, GOLDBERG and AINSWORTH, Circuit Judges.

AINSWORTH, Circuit Judge:

Appellants Glen and Bettie Till appeal from an adverse summary judgment by the district court dismissing their suit for damages against defendants Unifirst Federal Savings and Loan Association (Unifirst) and Wortman & Mann, Inc. (W&M), predicated on the alleged failure of defendants to comply with the provisions of the National Flood Insurance Program, 42 U.S.C. §§ 4012a(b) and 4104a (and all amendments), 1 and on state common law causes of action for fraud and negligence. This appeal presents for the first time the novel question whether a private right of action for damages against a federally insured savings and loan association is implied for failure to comply with the federal flood insurance laws. The district court held that no private right of action existed under the federal statutes and that all other claims presented by appellants failed since they were dependent upon implication of the private right of action in federal law. We affirm the district court's holding that the federal flood insurance statutes imply no private right of action cognizable in federal law. However, we vacate dismissal of the state common law causes of action and direct that they be remanded to the state court from which the suit originated.

I. Facts

Glen and Bettie Till purchased a residence in Jackson, Mississippi, on June 20 1975, for $170,000 which was paid in part by a $75,000 secured loan obtained from Unifirst. In the spring of 1979, the Pearl River swelled over its banks and flooded much of Jackson and the surrounding area including the Tills' home.

The Tills filed this complaint in Mississippi state court seeking to recover $175,847.67 in special damages and $1,758,476.70 in punitive damages from defendants as a result of their losses in the 1979 flood. In their complaint, plaintiffs alleged that at the time the property was purchased, the area had been designated by the Department of Housing and Urban Development (HUD) as a flood hazard area. Accordingly, they claimed that under the federal flood program instituted by the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973, Unifirst had two duties: (1) to notify the Tills at least ten days prior to closing their loan that the property was located in a flood hazard area, and (2) to require the purchase of flood insurance before executing the loan. Plaintiffs further alleged that Unifirst and its wholly owned subsidiary, W&M, failed to fulfill these duties. As a result of defendants' alleged failure to comply with federal law, the Tills asserted they were entitled to recover damages under state common law causes of action for fraud and negligence.

Defendants removed the case pursuant to 28 U.S.C. § 1441 to the United States District Court for the Southern District of Mississippi, claiming federal jurisdiction under 28 U.S.C. §§ 1331 and 1337. 2 In federal court, plaintiffs made it clear that they sought damages from defendants through a private right of action implied from the federal flood statutes, as well as seeking relief through their general state claims. Following a lengthy discovery period, defendants filed a motion to dismiss under Fed.R.Civ.P. 12(b) (6). Both sides filed memoranda and other materials on the issues presented by the motion and a hearing on the motion was conducted by the district court. The district judge, after noting that both parties had presented materials and the court had considered matters that were outside the scope of the pleadings, ruled the Rule 12(b)(6) motion would be treated as a motion for summary judgment. Accordingly, the district court granted summary judgment to defendants dismissing the suit of plaintiffs, holding that no private right of action was implied from the federal law and that all alleged common law actions were dependent upon the existence of the federal action.

On appeal, appellants assert that the district court erred in holding that there is no implied federal private cause of action under the federal flood laws. They also contend that the common law actions in their original complaint are in no way dependent on the federal law. 3

II. Federal Flood Laws

From 1968 to 1977, Congress passed a number of enactments which compose the National Flood Insurance Program (the "Program"). The first enactment, the National Flood Insurance Act of 1968, created a nationwide program to make flood insurance available to property owners in flood prone areas and to encourage the adoption by local communities of sound land use policies designed to diminish damage from flooding. 4 In establishing this program, Congress summarized the factors that made this action necessary as follows:

(a) The Congress finds that (1) from time to time flood disasters have created personal hardships and economic distress which have required unforeseen disaster relief measures and have placed an increasing burden on the Nation's resources; (2) despite the installation of preventive and protective works and the adoption of other public programs designed to reduce losses caused by flood damage, these methods have not been sufficient to protect adequately against growing exposure to future flood losses; (3) as a matter of national policy, a reasonable method of sharing the risk of flood losses is through a program of flood insurance which can complement and encourage preventive and protective measures; and (4) if such a program is initiated and carried out gradually, it can be expanded as knowledge is gained and experience is appraised, thus eventually making flood insurance coverage available on reasonable terms and conditions to persons who have need for such protection.

42 U.S.C. § 4001(a). 5

The procedures created by the 1968 Act were voluntary in nature. Congress anticipated that the local communities would voluntarily adopt the land use restrictions necessary for its citizens to participate in the flood insurance plan. However, it became clear that local acceptance of the voluntary program was inadequate. 6 Accordingly, Congress enacted the Flood Disaster Protection Act of 1973 which amended the Program to essentially make its adoption by the local governing bodies mandatory.

The 1973 Act used severe sanctions against non-participating communities to encourage enrollment in the Program. Any community not participating by July 1, 1975 would receive neither federal financial assistance for acquisition or construction purposes 7 nor federally related financing by private lending institutions for use in HUD designated flood risk zones. 8 Participation was conditioned upon adoption by the local community of the HUD promulgated guidelines for land use. Thus, a community not adopting the land use controls and participating in the Program was virtually cut off from federal assistance.

In those areas such as Jackson that did adopt the requisite land use controls, the 1973 Act further directed the appropriate federal supervisory agencies 9 to adopt regulations requiring lenders not to make loans in flood zones unless the property owners first purchased flood insurance. 42 U.S.C. § 4012a(b). 10 This provision was followed with an enactment by Congress in 1974 that required the same federal supervisory agencies to promulgate regulations directing lenders to notify borrowers, a reasonable period in advance of closing, that the property is located in a HUD identified flood risk zone. 42 U.S.C. § 4104a. 11 It is upon these two provisions that appellants claim they are entitled to a private right of action for damages from the 1979 Jackson flood.

III. Implied Private Right of Action

Once again we are asked to find from the language and history of a federal statute, an implied cause of action not explicitly provided for by Congress. The standards which such a cause of action must meet before it may be implied have become increasingly more stringent. Touche Ross & Co. v. Redington, 442 U.S. 560, 578, 99 S.Ct. 2479, 2490, 61 L.Ed.2d 82 (1975). The factors to be considered in this regard were delineated by the Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). They are as follows: (1) whether the plaintiff is one of a class for whose especial benefit the statute was enacted; (2) whether there is an indication of legislative intent to create or deny such remedy; (3) whether such a remedy would be inconsistent with the underlying legislative purpose; and (4) whether the cause of action is one traditionally relegated to state law. Cort v. Ash, supra, 422 U.S. at 78, 95 S.Ct. at 2088.

The theory of implied private actions is, of course, basically a matter of statutory construction. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 15, 100 S.Ct. 242, 245, 62 L.Ed.2d 146 (1979) (hereinafter TAMA); Belluso v. Turner Communications Corp., 633 F.2d 393, 395 (5th Cir. 1980). In interpreting federal statutes, Cort and its progeny all focus upon the "ultimate issue" of whether it was Congress' intent to create a private remedy. California v. Sierra Club, --- U.S. ----, ----, 101 S.Ct. 1775, 1779, 68 L.Ed.2d 101 (1981); Rogers v. Frito Lay, Inc., 611 F.2d 1074, 1078 (5th Cir. 1980), cert....

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