Hofbauer v. Northwestern Nat. Bank of Rochester, Minn.

• Decision Date: 02 March 1983
• Docket Number: Nos. 82-1522,82-1570,s. 82-1522
• Citation: 700 F.2d 1197
• Parties: Stanley J. HOFBAUER and Jean F. Hofbauer, Appellees, v. The NORTHWESTERN NATIONAL BANK OF ROCHESTER, MINNESOTA, Appellant. Stanley J. HOFBAUER and Jean F. Hofbauer, Appellants, v. The NORTHWESTERN NATIONAL BANK OF ROCHESTER, MINNESOTA, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1197

700 F.2d 1197

Stanley J. HOFBAUER and Jean F. Hofbauer, Appellees, v. The NORTHWESTERN NATIONAL BANK OF ROCHESTER, MINNESOTA, Appellant.

Stanley J. HOFBAUER and Jean F. Hofbauer, Appellants, v. The NORTHWESTERN NATIONAL BANK OF ROCHESTER, MINNESOTA, Appellee.

Nos. 82-1522, 82-1570.

United States Court of Appeals Eighth Circuit.

Submitted Jan. 11, 1983.

Decided March 2, 1983.

Briggs & Morgan, Richard G. Mark, St. Paul, Minn., for appellant/cross appellee, The Northwestern Nat. Bank of Rochester.

Brown, Bins & Klampe, Joseph J. Pingatore, Michael D. Klampe, Rochester, Minn., for appellees/cross appellants, Stanley J. Hofbauer and Jean F. Hofbauer.

Before BRIGHT, ARNOLD and JOHN R. GIBSON, Circuit Judges.

ARNOLD, Circuit Judge.

The principal question presented in this case is whether there is an implied federal right of action for damages for violations of certain provisions of the Flood Disaster Protection Act of 1973, and National Flood Insurance Act (NFIA), 42 U.S.C. Secs. 4012a(b), 4104a (1976). The District Court held that there is such a right of action and granted plaintiffs' motion for summary judgment. Hofbauer v. Northwestern Nat'l Bank of Rochester, 547 F.Supp. 940 (D.Minn.1981). We are persuaded to the contrary by the reasoning of several recent appellate opinions that were not available to the District Court. We therefore reverse.

I.

Some time before February 3, 1975, Stanley and Jean Hofbauer agreed to buy a house in Rochester, Minnesota. On or about February 3, 1975, they applied to the Northwestern National Bank for a Federal Housing Administration (F.H.A.) insured loan. The F.H.A. issued a loan commitment and appraisal, but did not indicate in the commitment papers or the appraisal that the property to be purchased was located in a special flood hazard area, or that flood insurance was required. Relying on the F.H.A. determination that flood insurance was not required, the Bank did not tell the plaintiffs that the property was in a special flood hazard area and did not require that they obtain flood insurance. The Bank lent the plaintiffs $17,300, insured by the F.H.A., and the loan was closed on March 10, 1975. In fact, the house was located in a special flood hazard area. On July 5 and 6, 1978, a flood occurred, damaging the property in question. Plaintiffs had no flood insurance at the time.

Plaintiffs sued the Bank in a Minnesota state court. They alleged that the Bank violated 42 U.S.C. Secs. 4012a(b) and 4104a and 12 C.F.R. Sec. 22 (1975) by failing to require that they purchase flood insurance as a condition to granting them a mortgage and by not informing them that their property was located in a special flood hazard area. They also claimed that the cited federal statutes and regulation established a standard of conduct that the Bank violated, and that this violation was actionable negligence under the common law of Minnesota. The Bank removed the case to the District Court, which held, as already mentioned, that there is an implied right of action for damages for violation of the NFIA. It was stipulated that the flood damage to the Hofbauers' property was $15,500. Summary judgment in this amount was entered for plaintiffs. As to the alternative state-law claim, the District Court held that the common law of Minnesota does not provide a negligence action for violation of the standard of conduct established by the NFIA.

The Bank appeals from the judgment against it. The Hofbauers have filed a conditional cross-appeal, asking that, if their judgment under the NFIA is reversed, we also reverse the District Court's dismissal of their state-law claim, and hold that the law of Minnesota does give them a right of action.

II.

Congress passed the NFIA in 1968 to provide limited indemnification for damages resulting from floods. Prior to the Act special disaster loans were the only relief available. Congress amended the NFIA in 1973 and enacted 42 U.S.C. Sec. 4012a(b), which provides in relevant part as follows:

Each federal instrumentality responsible for the supervision ... of banks ... shall by regulation direct such institutions not to make ... any loan secured by improved real estate ... located or to be located in an area that has been identified by the Secretary as an area having special flood hazards and in which flood insurance has been made available ... unless the building or mobile home and any personal property securing such loan is covered ... by flood insurance in an amount at least equal to the outstanding principal balance of the loan ....

Congress amended the statute again in 1974 and enacted 42 U.S.C. Sec. 4104a, which provides in pertinent part:

Each federal instrumentality responsible for the supervision ... of banks ... shall by regulation require such institutions, as a condition of making ... any loan secured by improved real estate ... located or to be located in an area that has been identified by the Secretary ... as an area having special flood hazards, to notify the purchaser ... of such special flood hazards ....

Shortly before the Bank made the loan in suit to the plaintiffs, the Comptroller of the Currency, the federal official responsible for supervising national banks, promulgated 12 C.F.R. Secs. 22.2 and 22.4, which require that banks make sure that borrowers properly insure their homes and notify borrowers when the property securing a loan is in a flood-risk area.

Sections 4012a(b) and 4104a of Title 42 do not expressly provide a private cause of action. We must decide whether to imply one. For over half a century federal courts readily allowed plaintiffs to imply private causes of action. See, e.g., Superintendent of Insurance v. Bankers Life & Cas. Co., 404 U.S. 6, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971); Texas & P.R.R. v. Rigsby, 241 U.S. 33, 36 S.Ct. 482, 60 L.Ed. 874 (1916). The Supreme Court began to reverse this trend in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), where it enunciated the following four-part test for implying a private cause of action for the violation of a federal statute:

First, is the plaintiff "one of the class for whose especial benefit the statute was enacted," --that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? And finally, is the cause of action one traditionally relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law?

Id. at 78, 95 S.Ct. at 2088 (citations omitted). In more recent cases the Supreme Court has looked almost exclusively to congressional intent--the Cort v. Ash criteria being treated as indicia of that intent, Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979); Touche Ross & Co. v. Redington, 442 U.S. 560, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979). Since deciding Cort v. Ash the Court has become increasingly more reluctant to imply new private causes of action for damages. See Middlesex County Sewerage Authority v. National Sea Clammers Ass'n, 453 U.S. 1, 101 S.Ct. 2615, 69 L.Ed.2d 435 (1981); Northwest Airlines, Inc. v. Transport Workers Union of America, 451 U.S. 77, 101 S.Ct. 1571, 67 L.Ed.2d 750 (1981); Texas Industries, Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981); California v. Sierra Club, 451 U.S. 287, 101 S.Ct. 1775, 68 L.Ed.2d 101 (1981).

We have carefully considered plaintiffs' arguments but agree with recent opinions holding that Secs. 4012a(b) and 4104a do not create an implied private cause of action for damages under federal law. Arvai v. First Federal Savings & Loan Ass'n, 698 F.2d 683 (4th Cir.1983); Till v. Unifirst Federal Savings and Loan Ass'n, 653 F.2d 152 (5th Cir.1981); R.B.J. Apartments, Inc. v. Gate City Savings & Loan Ass'n, 315 N.W.2d 284 (N.D.1982).

The Hofbauers are members of a class for whose benefit the statute was enacted. But in order to satisfy the first of the Cort v. Ash criteria they must show more. They must be members of a "special class" for whose benefit the statute was enacted, Cannon v. University of Chicago, 441 U.S. 677, 689, 99 S.Ct. 1946, 1953, 60 L.Ed.2d 560 (1979), and show that Congress drafted the statute with an "unmistakable focus on the benefitted class." Id. at 691, 99 S.Ct. at 1955. This they cannot do.

Congress enacted the NFIA to protect not only borrowers but lenders and the federal government as well. Till, supra, 653 F.2d at 159. When Congress first enacted the program in 1968 it intended to promote a program that would "make insurance against flood damage available, encourage persons to become aware of the risk of occupying the flood plains, and reduce the mounting Federal expenditures for disaster relief assistance." H.R.Rep. No. 1585, 90th Cong., 2d Sess., reprinted in [1968] U.S.Code Cong. & Ad.News 2873, 2966-67. The specific statutes in question were not enacted for the special benefit of borrowers. Section 4012a(b) requires flood insurance for the amount of the outstanding loan balance and not for the equity of...