#26119-a-DG
2012 S.D. 37
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
****
HIGHMARK FEDERAL CREDIT
UNION, Plaintiff and Appellee,
v.
RACHELLE L. HUNTER, Defendant and Appellant,
and
CREDIT COLLECTIONS BUREAU Defendant.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA
****
THE HONORABLE JEFF W. DAVIS
Judge
****
RODNEY C. LEFHOLZ
Rapid City, South Dakota Attorney for plaintiff
and appellee.
JAMES P. HURLEY of
Bangs, McCullen, Butler,
Foye & Simmons
Rapid City, South Dakota Attorneys for defendant
and appellant.
****
CONSIDERED ON BRIEFS
ON MARCH 19, 2012
OPINION FILED 05/16/12
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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
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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.
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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).
1. 42 U.S.C. § 4012a(b)(1), provides in relevant part:
Each Federal entity for lending regulation . . . shall by
regulation direct regulated lending 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 Director as an
area having special flood hazards and in which flood insurance
has been made available under the National Flood Insurance
Act of 1968, unless the building or mobile home and any
personal property securing such loan is covered for the term of
the loan by flood insurance in an amount at least equal to the
outstanding principal balance of the loan . . . .
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[¶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
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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 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, 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).
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[¶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, 279 S.E.2d 603, 604 (S.C. 1981); Mid-America
Nat’l Bank of Chicago, 161 Ill. App. 3d at 537, 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 to
persons who have need for such protection.
42 U.S.C. § 4001(a).
[¶15.] Based on congressional findings, courts have consistently held that in
adopting the NFIA, Congress meant to protect lenders and the federal treasury.
See Wentwood Woodside I, LP v. GMAC Commercial Mortg. Corp., 419 F.3d 310,
323 (5th Cir. 2005); Mid-America Nat’l Bank of Chicago v. First Sav. & Loan Ass’n
of South Holland, 737 F.2d 638, 642 (7th Cir. 1984) cert. denied, 469 U.S. 1160, 105
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S. Ct. 911, 83 L. Ed. 2d 924 (1984); Hofbauer, 700 F.2d at 1201; Arvai v. First Fed.
Sav. & Loan Ass’n, 698 F.2d 683, 684 (4th Cir. 1983); Till v. Unifirst Fed. Savings &
Loan Ass’n, 653 F.2d 152, 159-61 (5th Cir. 1981). “Although Congress intended to
help borrowers damaged by flooding, ‘the principal purpose in enacting the NFIP
was to reduce, by implementation of adequate land use controls and flood insurance,
the massive burden on the federal fisc of the ever increasing federal flood disaster
assistance.’” Audler v. CBC Innovis Inc., 519 F.3d 239, 252 (5th Cir. 2008) (quoting
Till, 653 F.2d at 159). “Section 4012a(b) requires flood insurance for the amount of
the outstanding loan balance and not for the equity of the borrower. If Congress
had passed the statute primarily for the benefit of borrowers, it would have
required that they insure their equity in the home.” Hofbauer, 700 F.2d at 1200.
“The fact that borrowers may suffer ‘special injury’ by violation of these statutes,
however, does not necessarily make them members of a class for whose especial
benefit the statute was enacted.” R.B.J. Apartments, 315 N.W.2d at 288.
[¶16.] The next reason that the NFIA does not establish a duty in a
negligence case is that the NFIA does not create a private right of action. A private
right of action essentially indicates the right of an individual to bring an action to
enforce particular regulations or statutes. See Alexander v. Sandoval, 532 U.S. 275,
285-86, 121 S. Ct. 1511, 1519, 149 L. Ed. 2d 517 (2001). “[P]rivate rights of action to
enforce federal law must be created by Congress.” Id. Accordingly, statutory intent
to create a private remedy is determinative. Id. Federal courts have consistently
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determined that the NFIA does not create a private right of action for borrowers. 2
Wright v. Allstate Ins. Co., 500 F.3d 390, 398 (5th Cir. 2007) (concluding that the
NFIA did not expressly or implicitly authorize a private federal common law cause
of action for fraud or negligent misrepresentation); Hofbauer, 700 F.2d at 1201;
Mid-America Nat’l Bank of Chicago, 737 F.2d at 640; Arvai, 698 F.2d at 684. If the
NFIA does not create a private right of action, then it follows that an individual
cannot use the NFIA to establish a duty in an individual civil claim.
[¶17.] After concluding that Congress did not intend a private cause of action
to arise from the NFIA, the North Dakota Supreme Court also concluded that a
common-law right of action for the violation of the statute was not intended. “The
separation-of-powers doctrine and principles of federalism militate against the
adoption of the federal statute as the standard of care in a state negligence action
when no private cause of action, either explicit or implicit, exists in the federal
statute.” R.B.J. Apartments, 315 N.W.2d at 290.
[¶18.] Hunter relies primarily on Small v. South Norwalk Savings Bank, 535
A.2d 1292 (Conn. 1988). In Small, the plaintiff purchased a house located in a
special flood hazard area. The defendant bank failed to advise her of this and her
house was damaged by flooding. The jury returned a verdict for the plaintiff on her
2. In addition to examining whether Congress intended for borrowers to be the
protected class of the NFIA, federal courts also examined the enforcement of
the NFIA. “The existence of an administrative enforcement mechanism
suggests that no other remedy was intended.” Hofbauer, 700 F.2d at 1201
(citing Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 20, 100 S.
Ct. 242, 247, 62 L. Ed. 2d 146 (1979)).
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negligence claim. Because defendant’s objections were untimely, appellate review
was for plain error. Defendant argued on appeal that because the alleged duty was
statutory, “the only legitimate inquiry is whether the federal legislation expressly or
impliedly creates a right of action under either federal or state law.” Id. at 1296.
The Connecticut Supreme Court noted:
Where a statute is designed to protect persons against injury,
one who has, as a result of its violation, suffered such an injury
as the statute was intended to guard against has a good ground
of recovery. . . . Statutory negligence is actionable upon
satisfaction of two conditions: (1) the plaintiff must be a member
of the class protected by the statute; and (2) the injury must be
of the type the statute was intended to prevent.
Id. at 1296-97.
[¶19.] Small is distinguishable from this case. First, the Connecticut
Supreme Court reviewed for plain error. Id. While other cases analyzed whether
borrowers are members of the class meant to be protected by the statutes, the court
in Small did not engage in such analysis. Id. Finally, the suit in Small was based
on a plaintiff who had not been informed that the house was in a designated flood
hazard area. Id. at 1293. In the present case, Hunter signed the Standard Flood
Hazard Determination that explicitly provided that she needed flood insurance.
CONCLUSION
[¶20.] Hunter’s negligence claim fails as a matter of law because she cannot
show that Highmark owed her a duty. Accordingly, summary judgment was
appropriate. See Hendrix, 2007 S.D. 73, ¶ 8, 736 N.W.2d at 847. We need not,
therefore, examine whether material facts were in dispute. We affirm.
[¶21.] KONENKAMP, ZINTER, SEVERSON, and WILBUR, Justices, concur.
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