Scritchfield v. Mutual of Omaha Ins. Co.

• Citation: 341 F.Supp.2d 675
• Decision Date: 25 October 2004
• Docket Number: Civil Action No. 1:04-CV-116.
• Parties: Kirk SCRITCHFIELD and Melissa Scritchfield, Plaintiffs, v. MUTUAL OF OMAHA INSURANCE COMPANY, Omaha Property and Casualty Insurance Company, Defendants.
• Court: U.S. District Court — Eastern District of Texas

Page 675

341 F.Supp.2d 675

Kirk SCRITCHFIELD and Melissa Scritchfield, Plaintiffs, v. MUTUAL OF OMAHA INSURANCE COMPANY, Omaha Property and Casualty Insurance Company, Defendants.

Civil Action No. 1:04-CV-116.

United States District Court, E.D. Texas, Beaumont Division.

October 25, 2004.

John Stephen Morgan, Lindsay & Morgan, PLLC, Beaumont, TX, for Plaintiffs.

Keith B. Letourneau, Bell Ryniker Letourneau & Nork, Houston, TX, for Defendants.

MEMORANDUM AND ORDER ON DEFENDANTS' MOTION TO DISMISS

CLARK, District Judge.

I. BACKGROUND

Plaintiffs Kirk and Melissa Scritchfield are owners of a Standard Flood Insurance Policy ("SFIP") issued by Defendants Mutual of Omaha Insurance Co. and Omaha Property and Casualty Insurance Co pursuant to the National Flood Insurance Act, 42 U.S.C. § 4001 et seq ("NFIA"). Their house was flooded on two separate occasions and Defendants paid an amount Plaintiffs claim to be inadequate. Plaintiffs filed a petition in state court claiming breach of contract under 42 U.S.C. § 4072 (2000), and asserting various state law claims. Defendants removed to this court. Plaintiffs then filed an amended complaint, striking all state law claims, and raising new claims under federal common law. Defendants moved under Fed.R.Civ.P. 12(b)(6) to dismiss all of Plaintiffs' claims, except the breach of contract claim under 42 U.S.C. § 4072.

Neither the NFIA, nor any other federal law, provides a basis for Plaintiffs' causes of action, other than their breach of contract claim. Therefore, Plaintiffs' claims of federal common law negligence, and for consequential damages, and their request for declaratory relief are dismissed. Plaintiffs consent to the dismissal of their claim for attorney's fees.

II. ISSUE PRESENTED

Plaintiffs' breach of contract claim arises under 42 U.S.C. § 4072. Defendants do not seek to dismiss this claim, so it will proceed. Plaintiffs have consented to the dismissal of the attorney's fees claim [Doc. # 21]. The sole issue before the court is whether Plaintiffs' additional claims of negligence, and for consequential damages, and their request for declaratory relief are cognizable under federal common law. This raises the novel question of whether the phrase "federal common law," as used in the SFIP, permits the court to judicially create causes of action and damage remedies.

III. STANDARD OF REVIEW

Granting a motion to dismiss under Rule 12(b)(6) is proper when a party has "failed to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). A court should dismiss a claim under Rule 12(b)(6) only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). All well-pleaded factual allegations are construed in the light most favorable to the Plaintiff. Herrmann Holdings Ltd. v. Lucent Technologies, Inc., 302 F.3d 552, 558 (5th Cir.2002). However, the court "[m]ay not rely on conclusional allegations or legal conclusions disguised as factual allegations." Jeanmarie v. United States, 242 F.3d 600, 602-03 (5th Cir.2001).

IV. ANALYSIS

Plaintiffs' SFIP was underwritten by the United States Treasury. The SFIP is set out in 44 C.F.R. Pt. 61, App. A(1) (2003) and is governed by Federal Emergency Management Agency ("FEMA") regulations, the National Flood Insurance Act of 1968, as amended 42 U.S.C. § 4001, et seq. ("NFIA") and federal common law. 44 C.F.R. Pt. 61, App. A(1), Art. IX (2003). The NFIA was proposed to Congress in 1967, but was not officially passed until 1968. The twin objectives of the proposed National Flood Insurance Program ("NFIP"), as discussed in the 1967 House Report were the following: "(1) to help victims of flood damage to restore their homes and businesses, and (2) to minimize the future risk of flood losses in locations and situations where the risk of loss exceeds the prospect of gain from use of the site." H.R.Rep. No. 90-786, at 10 (1967). In enacting the NFIA, Congress was concerned with the enormous amount of flood relief being provided to disaster prone regions without insurance. See Till v. Unifirst Fed. Sav. & Loan Ass'n, 653 F.2d 152, 156-57 (5th Cir.1981); 42 U.S.C. § 4001(a) (2000).

Since the flood insurance program is a child of Congress, conceived to achieve policies which are national in scope, and since the federal government participates extensively in the program both in a supervisory capacity and financially, it is clear that the interest in uniformity of decision ... mandates the application of federal law.

West v. Harris, 573 F.2d 873, 881 (5th Cir.1978); see Jamal v. Travelers Lloyds of Texas Ins. Co., 97 F.Supp.2d 800, 804 (S.D.Tex.2000) (noting that it is well-settled that disputes arising under the NFIA are governed by federal law). The court in Jamal cited to an affidavit from the Texas Department of Insurance, which in relevant part stated: "[p]rovisions of the Texas Insurance Code do not apply to an insurer issuing a SFIP." Jamal, 97 F.Supp.2d at 805.

The Defendants are Write-Your-Own ("WYO") carriers participating in the NFIP as fiscal agents for the United States. 42 U.S.C. § 4071(a) (2000). All terms of the SFIP are fixed by FEMA and cannot be waived or amended without express written consent. 44 C.F.R. §§ 61.13(d), 61.14(b) (2003). All premiums collected by WYO carriers are deposited in the National Flood Insurance Fund. 42 U.S.C. § 4017(d) (2000). All claims are thus paid by the United States Treasury. 44 C.F.R. Pt. 62, App. A, Art. III(D)(1) (2003); see Gowland v. Aetna, 143 F.3d 951, 955 (5th Cir.1998). A suit against a WYO is a suit against FEMA. Van Holt v. Liberty Mut. Fire Ins. Co., 163 F.3d 161, 166-67 (3d Cir.1998).

The parties agree that policy holders can bring a breach of contract suit under 42 U.S.C. § 4072, if they are dissatisfied with the amount offered in the settlement of a flood damage claim. But § 4072 does not provide for consequential damages, negligence claims, or for declaratory judgment actions. Defendants assert numerous well-reasoned arguments for the court to dismiss these claims brought under federal common law. Plaintiffs' response states that because Defendants point to no case dealing with federal common law claims under a SFIP, the court should not dismiss them. It is true that neither Defendants, nor Plaintiffs cite a case directly on point, but that alone is not reason to either grant or deny a motion to dismiss.

The court must decide whether to create new federal common law causes of action under the SFIP. In deciding this issue, the court first looks at the intent of the NFIA and the brief legislative history behind it, to determine whether an implied private cause of action exists under the NFIA. Second, the court will examine the SFIP and preemption. Third, the court will analyze issues such as sovereign immunity and the Appropriations Clause. Finally, the court will revisit the age-old text of Erie, and the proposition that "[t]here is no federal general common law." Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 823, 82 L.Ed. 1188 (1938).

1. Implied Private Cause of Action

By pleading claims that do not arise under a specific federal statute, Plaintiffs are asking the court to imply a private cause of action under the NFIA. Plaintiffs must be able to meet the stringent burden imposed by Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). The relevant factors are: (1) whether the plaintiff is one of a class for whose "especial benefit" the statute was enacted; (2) is there any indication of legislative intent to either create or deny such remedy; (3) is it consistent with the underlying legislative purpose to imply such a remedy for plaintiff; and (4) whether the cause of action is one traditionally relegated to state law, so that it would be inappropriate to infer a cause of action based solely on federal law. Cort, 422 U.S. at 78, 95 S.Ct. at 2088.

The first prong of Cort requires the court to determine whether Plaintiffs are "especial beneficiaries" of the NFIA. This issue was considered under different facts in Till v. Unifirst Fed. Sav. & Loan Ass'n, 653 F.2d 152 (5th Cir.1981). In Till, the Court was faced with the novel question of whether to create an implied cause of action pursuant to 42 U.S.C. §§ 4012a(b), 4104a (2000). Till, 653 F.2d at 157. The statutes require lenders to notify parties if their property is in a flood hazard area, and to require parties to purchase flood insurance. Id. at 155. The Court held there was no implied private cause of action because the parties were not "especial beneficiaries" of the NFIA, nor primary beneficiaries of the NFIA, because the legislative intent behind the statute was clearly to reduce the "massive burden on the federal fisc of the ever-increasing federal flood disaster assistance." Id. at 159; see H.R.Rep. No. 90-1585 (1968), reprinted in 1968 U.S.C.C.A.N. 2873, 2966-67. Plaintiffs in this case are not "especial beneficiaries" of the NFIA. Of course, Plaintiffs, like everyone who decides to live in flood-prone areas, may benefit from the NFIA, but that does not raise Plaintiffs to the level of "especial beneficiaries."

Under the second prong of Cort, the court reviews the legislative history to decide whether an implied cause of action is either explicitly, or implicitly, within the statute. Cort, 422 U.S. at 78, 95 S.Ct. at 2088. Where a statute does not expressly create or deny a private cause of action, the court is extremely cautious in inferring one. See Touche Ross & Co. v. Redington, 442 U.S. 560, 571, 99 S.Ct. 2479, 2486 (1979).

The NFIA does permit policyholders to sue for breach of contract if they are dissatisfied with the amount of claim payments. 42 U.S.C. § 4072. The Act also provides for administrative review when FEMA makes a federal flood hazard designation. 42 U.S.C. § 4104 (2000). But here, as in Touche Ross,...