Mid-America Nat. Bank of Chicago v. First Sav. & Loan Ass'n of South Holland

• Citation: 737 F.2d 638
• Decision Date: 01 May 1981
• Docket Number: MID-AMERICA
• Parties: NATIONAL BANK OF CHICAGO, not personally but as Trustee pursuant to a Trust Agreement dated
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 638

737 F.2d 638

MID-AMERICA NATIONAL BANK OF CHICAGO, not personally but as

Trustee pursuant to a Trust Agreement dated May 1,

1981, and known as Trust Number 1575, et

al., Plaintiffs-Appellants, v. FIRST SAVINGS AND LOAN ASSOCIATION OF SOUTH HOLLAND, et al.,

Defendants-Appellees.

No. 83-1716.

United States Court of Appeals,

Seventh Circuit.

Argued Feb. 17, 1984.

Decided June 15, 1984.

Arnold H. Landis, Law Office of Arnold H. Landis, Chicago, Ill., for plaintiffs-appellants.

Glen H. Kanwit, Hopkins & Sutter, Chicago, Ill., for defendants-appellees.

Before CUMMINGS, Chief Judge, COFFEY, Circuit Judge, and BEATTY, District Judge. ^*

CUMMINGS, Chief Judge.

This appeal presents the issue of whether an implied right of action exists in favor of borrowers against lenders under the National Flood Insurance Program (the "Flood Program"), 42 U.S.C. Secs. 4012a(b) and 4104a. The district court granted defendants' motion to dismiss, holding that no such implied right of action exists under Sections 4012a(b) and 4104a, and we affirm.

I

The named plaintiffs are ten individuals, being five husbands and wives, and the trustee of an Illinois land trust. Plaintiffs brought this action on their own behalf and on behalf of an alleged class against 27 federally chartered or insured commercial banks and savings and loan associations. Six of the defendant institutions extended mortgage loans to the named plaintiffs for the purchase of properties located in the southern Chicago metropolitan area. The remaining 21 defendants are alleged to have loaned money to a member of the plaintiff class in a situation similar to that of the named plaintiffs.

The named plaintiffs assert that the mortgaged property securing their loans is located in an area identified by the Department of Housing and Urban Development (HUD) or the Federal Emergency Management Agency (FEMA) as being prone to flooding. Plaintiffs claim that defendants violated 42 U.S.C. Sec. 4104a by failing to notify plaintiffs of the flood risk when plaintiffs acquired their loans, and that defendants violated 42 U.S.C. Sec. 4012a(b) by failing to require plaintiffs to purchase flood insurance to the extent of the loan amounts. Plaintiffs' property suffered flood damage, and plaintiffs assert their losses were uninsured. Although the above provisions do not expressly create a federal cause of action in favor of borrowers against mortgage lenders, plaintiffs seek to hold defendants liable for the losses and claim that an implied private right of action exists under Sections 4012a(b) and 4104a of the Flood Program.

Count I of plaintiffs' complaint alleges the above-mentioned federal cause of action. Counts II and III assert that defendants' actions violated state common law and the Illinois Consumer Fraud and Deceptive Business Practices Act, Ill.Rev.Stat., ch. 121 1/2, Secs. 261-272.

Defendants brought a motion to dismiss, accepting plaintiffs' factual allegations as true in order to reach the dispositive legal issue. The district court granted defendants' motion, holding that no implied right of action exists under the Flood Program which would allow borrowers to sue their mortgage lenders. Since no independent basis for federal jurisdiction remained, the district court dismissed the pendent state claims without prejudice. ¹ Plaintiffs appeal from the district court's memorandum opinion and order granting defendants' motion to dismiss.

II

In 1975 the Supreme Court in Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26, set out a four-factor analysis by which to determine whether an implied right of action exists under a statute: (1) whether the plaintiff is a member of the class for whose "especial benefit" the statute was passed; (2) whether there is any indication of legislative intent, explicit or implicit, either to create a private right of action or to deny one; (3) whether a private right is consistent with the underlying purposes of the legislative scheme; and (4) whether the claim is one traditionally assigned to state law so that it would be inappropriate to infer a claim based on federal law. Cort v. Ash, 422 U.S. at 78, 95 S.Ct. at 2088.

The approach taken in Supreme Court decisions subsequent to Cort indicates that the determination whether an implied right of action exists under a statute need not be broken down into four purportedly separate factors. In these more recent cases the Supreme Court has focused on a comprehensive analysis of legislative intent instead of explicitly following the point-by-point Cort analysis. Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 23-24, 100 S.Ct. 242, 249, 62 L.Ed.2d 146; Touche Ross & Co. v. Redington, 442 U.S. 560, 568, 99 S.Ct. 2479, 2485, 61 L.Ed.2d 82. Indeed the first and third Cort factors are intimately related to the question of legislative intent. Touche Ross & Co. v. Redington, 442 U.S. at 575-576, 99 S.Ct. at 2488-2489. Pursuant to this development the second Cort factor--legislative intent--is the crucial issue, to be resolved in light of the statutory language, legislative history, and legislative purpose. Universities Research Association v. Coutu, 450 U.S. 754, 770, 101 S.Ct. 1451, 1461, 67 L.Ed.2d 662; Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. at 23-24, 100 S.Ct. at 249; Touche Ross & Co. v. Redington, 442 U.S. at 575-576, 99 S.Ct. at 2488-2489; Bassler v. Central National Bank, 715 F.2d 308, 310 (7th Cir.1983); Indiana National Corp. v. Rich, 712 F.2d 1180, 1185 (7th Cir.1983).

With this mode of analysis we now turn to the substantive issue in this case. The Fourth, Fifth, and Eighth Circuits have considered the precise issue before us and have held that no implied private right of action exists under Sections 4012a(b) and 4104a. Hofbauer v. Northwest National Bank of Rochester, 700 F.2d 1197 (8th Cir.1983); Arvai v. First Federal Savings & Loan Association, 698 F.2d 683 (4th Cir.1983); Till v. Unifirst Federal Savings & Loan Association, 653 F.2d 152 (5th Cir.1981). Accord Brill v. Northern California Savings & Loan Association, 555 F.Supp. 566 (N.D.Cal.1982) (Peckham, C.J.). Two state courts have reached the same result. R.B.J. Apartments, Inc. v. Gate City Savings & Loan Association, 315 N.W.2d 284 (N.D.1982); Pippin v. Burkhalter, 276 S.C. 438, 279 S.E.2d 603 (1981). Plaintiffs do not cite nor does our research disclose any reported decision not overruled that reaches a contrary result. ² Upon an analysis of the statutory language, legislative history, and legislative purpose, this Court concludes similarly that no implied private right of action exists under Sections 4012a(b) and 4104a of the Flood Program.

The enactment initiating the Flood Program is the National Flood Insurance Act of 1968. The 1968 Act created a nationwide program to encourage the adoption by local communities of sound land use practices designed to reduce or avoid damage from flooding, and to encourage the purchase of flood insurance in designated flood hazard areas. Congress set forth the factors that formed the basis of the 1968 Act:

(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. Sec. 4001(a). As a condition of eligibility for government-subsidized flood insurance the 1968 Act required HUD-designated flood-prone communities to adopt local flood plain management policies to diminish potential flood damage. 42 U.S.C. Secs. 4022, 4102.

The availability of government subsidized flood insurance did not, however, provide adequate incentive to attract extensive local community participation in the Flood Program. ³ Accordingly, Congress promulgated the Flood Disaster Protection Act of 1973, which is combined with the 1968 Act at 42 U.S.C. Secs. 4001 et seq. Section 4106 of the 1973 Act, as originally enacted, required participation for the flood-prone community to be eligible for federal financial aid for general construction or acquisition purposes ⁴ as well as for financing by federally supervised private lending institutions. ⁵ The latter restriction was eliminated by Section 703(a) of the Housing and Community Development Act of 1977 ⁶ and as amended is now a notice requirement mandating that the federal agencies ⁷ which supervise the mortgage lenders require the lenders to inform borrowers whether or not their properties would be eligible for federal disaster relief assistance in the event of a flood. 42 U.S.C. Sec. 4106(b).

The particular provisions upon which plaintiffs base their claim are 42 U.S.C. Secs. 4012a(b) and 4104a. Section 4012a(b), found at Section 102 of the 1973 Act, requires that:

Each Federal instrumentality responsible for the supervision, approval, regulation, or insuring of banks, savings and loan associations, or similar institutions shall by regulation direct such institutions not to * * * extend any loan secured by * * * real estate * * * in an area that has been identified by the Secretary [of HUD] as an area having special flood hazards * * * unless the building * * * and any personal property securing such loan is...