Paul v. Landsafe Flood Determination, Inc.

• Decision Date: 02 December 2008
• Docket Number: No. 07-60652.,07-60652.
• Citation: 550 F.3d 511
• Parties: Neil PAUL; Mary Dobsa, Plaintiffs-Appellants, v. LANDSAFE FLOOD DETERMINATION, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

550 F.3d 511

Neil PAUL; Mary Dobsa, Plaintiffs-Appellants, v. LANDSAFE FLOOD DETERMINATION, INC., Defendant-Appellee.

No. 07-60652.

United States Court of Appeals, Fifth Circuit.

December 2, 2008.

Robert H. Tyler (argued), Tyler Law Firm, Biloxi, MS, for Plaintiffs-Appellants.

H. Hunter Twiford, III (argued), Frank Edwin McRae, III, McGlinchey Stafford, Jackson, MS, for Defendant-Appellee.

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

Before BENAVIDES, SOUTHWICK and HAYNES, Circuit Judges.

SOUTHWICK, Circuit Judge:

After receiving an erroneous flood zone determination, Mary Dobsa brought claims of negligence and negligent misrepresentation against Landsafe Flood Determination, Inc. The district court granted summary judgment to the Defendant. For the reasons that will be explained, we reverse and remand.

I. BACKGROUND

Mary Dobsa owned a home in Biloxi, Mississippi, in which she and Neil Paul resided. Countrywide Home Loans, Inc. was the mortgage lender on the home. Prior to financing and in accordance with the National Flood Insurance Act, Countrywide selected Landsafe to determine whether Dobsa's home was located in a federal flood zone. Dobsa paid for Landsafe's services.

Landsafe indicated that the home was not situated in a flood-hazard area. Accordingly, Countrywide provided financing without requiring Dobsa to obtain flood insurance through the National Flood Insurance Program. Unfortunately, Hurricane Katrina struck on August 29, 2005, and caused substantial damage to this residence for which no flood insurance coverage existed. It was then learned that the home was actually located in a flood-hazard area.

Dobsa and Paul¹ (to whom we will refer as "Dobsa") subsequently filed a diversity action in the district court, alleging negligence and negligent misrepresentation against Landsafe under Mississippi law.² They also sought punitive damages. Following discovery, the district court granted Landsafe's motion for summary judgment. This appeal was timely brought.

II. DISCUSSION

A. Standard of Review

We review the district court's grant of summary judgment de novo. XL Specialty Ins. Co. v. Kiewit Offshore Servs., Ltd., 513 F.3d 146, 149 (5th Cir.2008). Summary judgment is appropriate only when the record reflects "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). To determine whether a genuine issue of material fact exists, "we view facts and inferences in the light most favorable to the nonmoving party." Mahaffey v. Gen. Sec. Ins. Co., 543 F.3d 738, 740 (5th Cir. 2008). We must reverse summary judgment if it is determined that a reasonable jury could return a verdict in favor of the non-moving litigant. See Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 399 (5th Cir.2008).

B. The National Flood Insurance Act

The National Flood Insurance Act was enacted to make homeowner insurance affordable in designated flood-prone areas. 42 U.S.C. § 4001. The Federal Emergency Management Agency is required to identify flood-prone areas, publish flood-risk-zone data, and revise that data as needed. Id. § 4101(a). Any federally regulated lender making a loan secured by improved real estate located in a designated flood-risk zone must as a condition of making the loan require the purchase of insurance through the National Flood Insurance Program. Id. § 4012a(b)(1). Banks and lending institutions are responsible for determining if a piece of property falls within a designated flood-risk zone; the institutions may delegate the determination to third parties provided "the accuracy of the information" is guaranteed. Id. § 4104b(d). There is no liability for a lender who relies on a previous flood-zone determination at the time of "increasing, extending, renewing, or purchasing a loan ...." Id. § 4104b(e). It is unclear how that particular immunity applies to the making of the initial loan. Cf. Id. § 4104b(d) (a lender who "makes, increases, extends, or renews" a relevant loan may rely on a third party to determine flood-zone status).

Several judicial precedents have settled some of the liability issues that arise when a determination is erroneously made that property is not in a flood-risk zone, insurance was therefore not obtained, and damage from flooding thereafter occurs. We know from these precedents that the Act does not create an implied private right of action for borrowers when a determination is erroneously made that property is outside a flood zone. Till v. Unifirst Fed. Sav. & Loan Ass'n, 653 F.2d 152, 161 (5th Cir.1981). Two decades later, we observed that every "single federal court to consider whether a private right of action arises under section 4012a has concluded" that it does not. Wentwood Woodside I, L.P. v. GMAC Commercial Mortgage Corp., 419 F.3d 310, 323 (5th Cir.2005).

We also find that a panel of this court determined, under Texas law, that the federal statutory requirements do not create a standard of conduct, the breach of which would form the basis for a negligence per se suit against the lender. Id. at 321-23. A federal district court has similarly found that the Act does not create a standard for a state negligence per se suit under Mississippi law against a flood-zone determination company. Lusins v. First Am. Real Estate Solutions of Tex., L.P., No. 1:06-CV-646, 2007 WL 1745625 (S.D.Miss. June 14, 2007).³ The negligence per se doctrine, as a species of state tort law, is something for each state to determine. Pending state court determinations, federal courts have to predict outcomes.

The Plaintiff here disavows reliance on the doctrine either of an implied cause of action under the Act or of negligence per se. We note these precedential guideposts on this Act and move to what the Plaintiff asserts in her effort to avoid these barriers. Dobsa maintains that her claim arises solely under Mississippi law. This court previously recognized that the lack of a private cause of action under the Act would not foreclose relief under state tort law, ironically making that decision in a Mississippi case. Till, 653 F.2d at 154. The case had been removed from state court based on federal question jurisdiction; we remanded so that the district court could return the suit to state court. Id. at 162. We find no published opinion reflecting what occurred after the state trial court regained jurisdiction. Unlike in Till, in this diversity suit we must address whether there are Mississippi remedies. We now turn to that issue.

C. Mississippi Law

As noted, Dobsa eschews reliance on the doctrines we have just reviewed. Instead, she argues that a cause of action for the very negligence alleged in this suit has already been recognized in Mississippi. We examine that case closely since it is the foundation for the claim.

The Mississippi precedent arose in the context of a devastating flood in the state's capital city on Easter Sunday, 1979. McKinnon v. Batte, 485 So.2d 295, 296 (Miss.1986). Late in the year before the flood, McKinnon had hired a surveyor as required by his lender. The surveyor erroneously determined that the home McKinnon was buying was not in a flood-hazard area. Id. at 296-97. The surveyor as well as the agent who wrote the homeowner's insurance policy were defendants in the suit brought on the theory of negligence. There was evidence that the insurance agent had used a 1974 map to inform the plaintiff that he did not need to buy flood insurance, while the official map issued in 1975 indicated that the property was in a flood zone. Id. at 297. Whether such a reason also explained the surveyor's error is not stated in the opinion.

The National Flood Insurance Act required in 1979—and still requires—a lender "to notify the purchaser ... of such special flood hazards, in writing, a reasonable period in advance of the signing of the purchase agreement ...." Id. at 298 (quoting 42 U.S.C. § 4104a). No party in our case disputes that besides giving this notice to the buyer, a lender must also require flood insurance as a condition for making a loan that is secured by flood-zone property. See 42 U.S.C. § 4012a(b)(1). The point was disputed in McKinnon, though. A bank lawyer testified that when property was in a flood zone, the lender had to require the purchase of flood insurance. Id. at 299. The closing attorney, however, testified that when property was in a flood zone, he would just ask the lender and buyer if either wanted flood insurance. Id. No issue for the court to resolve was raised in the appeal about whether insurance was optional. Id. at 296. A choice for buyers that appears to have been a premise for the court's analysis, though, was that they could purchase flood insurance even when the property was not in a flood zone. Id. at 297 (insurance agent asked why he had not "suggested" flood insurance be purchased, and it was because property was not in a flood zone). Even if that option was available in 1979, we do not know if it was an option available to Dobsa.

In McKinnon, a fact issue submitted to the jury was whether the plaintiff had relied on either the insurance agent or surveyor when he decided not to buy flood insurance. There was evidence that the buyer ignored the survey and relied on information from neighbors that the property had never flooded. Id. The jury reached a verdict in favor of the defendants. The Mississippi Supreme Court described the standard of care applicable to surveyors as being the "skillful[] discharge [of] their contractual obligation." Id. at 298. Duty, breach, and damages were clearly shown, but the claim failed based on lack of evidence of causation. Id. at 299. The buyer simply had not relied on the survey.

McKinnon is uncertain support for our Plaintiff. That case was tried as if flood insurance coverage might be a choice to be made by a buyer at the time of purchase....