Highmark Fed. Credit Union v. Hunter

• Decision Date: 16 May 2012
• Docket Number: No. 26119.,26119.
• Parties: HIGHMARK FEDERAL CREDIT UNION, Plaintiff and Appellee, v. Rachelle L. HUNTER, Defendant and Appellant, and Credit Collections Bureau, Defendant.
• Court: South Dakota Supreme Court

814 N.W.2d 413

2012 S.D. 37

HIGHMARK FEDERAL CREDIT UNION, Plaintiff and Appellee,

v.Rachelle L. HUNTER, Defendant and Appellant,andCredit Collections Bureau, Defendant.

No. 26119.

Supreme Court of South Dakota.

Considered on Briefs March 19, 2012.

Decided May 16, 2012.

Rodney C. Lefholz, Rapid City, South Dakota, for plaintiff and appellee.

James P. Hurley of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, South Dakota, for defendant and appellant.

GILBERTSON, Chief Justice.

[¶ 1.] Rachelle Hunter received a loan from Highmark Federal Credit Union to purchase a home and property. A flood damaged the home a few years later. There was no flood insurance. Hunter argues Highmark was negligent in failing to warn her to purchase flood insurance and in failing to purchase the insurance at her expense. Hunter appeals from the circuit court's grant of summary judgment.

FACTS

[¶ 2.] In 2005, Highmark made a loan to Hunter to purchase a manufactured home and lot in Hermosa, South Dakota. Hunter signed a document titled “Standard Flood Hazard Determination” that indicated the property was in a 100–year flood area. The document included a section titled “Notice to Borrower about Federal Flood Disaster Assistance.” Under that section, the following language provided in part:

The Flood Disaster Protection Act of 1973, as amended, mandates federally insured or regulated lenders to require the purchase of flood insurance on all buildings being financed that are located in [Special Flood Hazard Areas] of communities participating in the [National Flood Insurance Program]. The flood insurance must be maintained for the term of the loan. If you fail to purchase or renew flood insurance on the property, Federal law authorizes and requires us to purchase the flood insurance at your expense.

No flood insurance was purchased by either Hunter or Highmark. In 2007, a flood damaged the home and the personal property inside.

[¶ 3.] The Flood Disaster Protection Act of 1973 (FDPA), as amended, 42 U.S.C. §§ 4001–4129, and Code of Federal Regulations, 12 C.F.R. § 760, place certain requirements on federally regulated financial institutions. Such institutions cannot make a loan secured by improved real estate in an area designated as a special flood hazard unless the property is covered by flood insurance. Before the loan can be made, the borrower must obtain the insurance. If the borrower does not, the institution is authorized and required to obtain the flood insurance at the borrower's expense.

[¶ 4.] After the flood, Highmark filed a foreclosure action against Hunter. Highmark demanded the balance of the loan plus interest. Hunter counterclaimed, alleging that Highmark did not inform her she needed to purchase flood insurance. She also argued Highmark was negligent in failing to purchase the required flood insurance and add the premium cost to her account. Hunter asserted that such failure was a breach of Highmark's statutory duty and was negligent as a matter of law.

[¶ 5.] Highmark moved for summary judgment, contending that there were no genuine issues of material fact regarding its foreclosure complaint and it was entitled to judgment as a matter of law. As to Hunter's counterclaim, Highmark argued that it had no statutory or common-law duty to Hunter under the FDPA so Hunter's counterclaim should be dismissed. The circuit court denied the motion in October 2008. In 2009, the parties stipulated to foreclosure and a sheriff's sale of the property. Under the stipulation, Hunter's counterclaim would continue.

[¶ 6.] In May 2011, Highmark moved for summary judgment on Hunter's counterclaim. After a hearing, the circuit court granted the motion. Hunter appeals.

STANDARD OF REVIEW

[¶ 7.] “Summary judgment is examined de novo: we give no deference to [the court's] ruling.” Adrian v. Vonk, 2011 S.D. 84, ¶ 8, 807 N.W.2d 119, 122. “Summary judgment in a negligence case is appropriate when the trial judge resolves the duty question in the defendant's favor.” Hendrix v. Schulte, 2007 S.D. 73, ¶ 8, 736 N.W.2d 845, 847.

ANALYSIS

[¶ 8.] The National Flood Insurance Act of 1968 (NFIA), 42 U.S.C. §§ 4001–4129, established the National Flood Insurance Program (NFIP). Congress enacted the FDPA in 1973, amending the NFIA to require flood insurance for loans secured by improved real estate located within a designated special flood hazard area. 42 U.S.C. § 4012a(b).¹ Lending institutions must notify a borrower of the flood insurance requirement; if the borrower fails to obtain flood insurance, the lender must do so at the borrower's expense. 42 U.S.C. § 4012a(e).

[¶ 9.] Hunter's counterclaim is based on negligence. “In order to prevail in a suit based on negligence, a plaintiff must prove duty, breach of that duty, proximate and factual causation, and actual injury.” Hendrix, 2007 S.D. 73, ¶ 7, 736 N.W.2d at 847 (quoting Fisher Sand & Gravel Co. v. S.D. Dep't of Transp., 1997 S.D. 8, ¶ 12, 558 N.W.2d 864, 867). “A duty can be created by statute or common law.” Id. (quoting Kuehl v. Horner Lumber Co., 2004 S.D. 48, ¶ 11, 678 N.W.2d 809, 812). Hunter asserts that Highmark had a statutory duty to make sure there was flood insurance on the property; if there was none, Highmark had a duty to purchase flood insurance at Hunter's expense. “As a general rule, the existence of a duty is to be determined by the court.” Id. ¶ 8 (quoting Erickson v. Lavielle, 368 N.W.2d 624, 627 (S.D.1985)).

[¶ 10.] We have previously examined whether a state statute establishes a duty in a negligence action. Albers v. Ottenbacher, 79 S.D. 637, 116 N.W.2d 529 (1962). In Albers, the plaintiff's vehicle was struck by the defendant's vehicle after his brakes failed. Id. We determined that “when the driver ... violates the specific regulations as to brakes ... he is guilty of negligence as a matter of law unless it appears that compliance was excusable....” Id. at 643, 116 N.W.2d at 532.

Negligence is the breach of a legal duty. It is immaterial whether the duty is one imposed by the rule of the common law requiring the exercise of ordinary care or skill not to injure another, or is imposed by a statute designed for the benefit of a class of persons which includes the one claiming to have been injured as the result of nonperformance of the statutory duty. The measure of legal duty in the one case is to be determined upon common law principles, while in the other the statute fixes a standard by which the fact of negligence may be determined. With reference to the adoption of the requirements of a legislative enactment or regulation as a standard of conduct in determining liability for negligence, we have said: “The violation of a statute or ordinance, designed for the benefit of individuals, is of itself sufficient to prove such a breach of duty as will sustain an action for negligence brought by a person within the protected class if other elements of negligence concur. The statute or ordinance becomes the standard of care or the rule of the ordinarily careful and prudent person.”

Id. at 641, 116 N.W.2d at 531 (emphasis added) (citations omitted).

[¶ 11.] Albers involved state statutes. In Hofbauer v. Northwestern National Bank of Rochester, 700 F.2d 1197, 1201 (8th Cir.1983), the Eighth Circuit Court of Appeals held that it was for states to determine whether state common law adopted as a “standard of conduct for negligence purposes the duties established by the NFIA.” Whether federal statutes establish a standard of care, i.e. duty, in state-based claims is a matter of state law. Id.; see also Mid–America Nat'l Bank of Chicago v. First Sav. & Loan Ass'n of South Holland, 161 Ill.App.3d 531, 535, 113 Ill.Dec. 367, 515 N.E.2d 176, 179 (Ill.App.Ct.1987) (“The question of whether or not a Federal statute establishes the appropriate standard of conduct for a state common law cause of action is a matter of state law.”).

[¶ 12.] Hunter argues that her claim is not based on violations of the NFIA but simply on common-law negligence. However, she agrees that the duty arises from the NFIA. The NFIA requires lenders to inform borrowers when flood insurance is necessary and purchase the insurance if the borrower does not. “Therefore, any duty [Highmark] owed to [Hunter] would have arisen from the [NFIA], a breach of which would violate the [NFIA]. For this reason, [Hunter's] claims are based directly on alleged violations of the [NFIA].” Ford v. First Am. Flood Data Servs., Inc., 2006 WL 2921432 at *5 (M.D.N.C. Oct. 11, 2006).

[¶ 13.] Other states have determined that the NFIA does not establish a duty. R.B.J. Apartments, Inc. v. Gate City Sav. & Loan Ass'n, 315 N.W.2d 284, 290 (N.D.1982); Pippin v. Burkhalter, 276 S.C. 438, 279 S.E.2d 603, 604 (1981); Mid–America Nat'l Bank of Chicago, 161 Ill.App.3d at 537, 113 Ill.Dec. 367, 515 N.E.2d at 180. To reach such a conclusion, those courts have generally relied on congressional intent and the analysis of federal courts that the NFIA does not create an implied private cause of action.

[¶ 14.] When passing the NFIA, Congress found 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...