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Water Log 28.4, February, 2009

Court Grants Standing to File Suit in Light of Flood-Zone Surveyor’s Erroneous Decision

Paul v. Landsafe Flood Determination, Inc., 2008 U.S. App. LEXIS 25297 (5th Cir. Dec. 5, 2008).

Moses R. DeWitt, 2010 J.D. Candidate, Florida State University School of Law

The United States Court of Appeals for the Fifth Circuit held that a homeowner has standing to file suit against a land surveyor who erroneously determined that the homeowner’s property was not located in a flood zone because the homeowner is statutorily mandated by the National Flood Insurance Act to rely upon that determination when purchasing flood insurance.

Background
Mary Dobsa financed her home in Biloxi, Mississippi, in which she lived with Neil Paul, through Countrywide Home Loans (“Countrywide”). Countrywide is required to abide by the National Flood Insurance Act because the Federal Deposit Insurance Corporation provides backing to Countrywide.

Countrywide selected Landsafe Flood Deter­ min­ ation, Inc. (“Land­ safe”), to survey Dobsa’s home, and Landsafe determined the home was not located in a flood zone. Dobsa relied on these findings when electing not to purchase flood insurance through the National Flood In­ surance Program.

On August 29, 2005, Hurricane Katrina struck the Gulf Coast and caused significant flood damage to Dobsa’s home. It was then learned that Dobsa’s home actually was located in a flood-hazard area.1

Litigation Ensues
The Federal Emergency Management Agency is required to designate flood-prone areas.2 The National Flood Insurance Act of 1968 requires that a federally regulated lender, such as Country­ wide, making a loan secured by improved real estate in a designated flood-prone area, must require the purchase of insurance through the National Flood Insurance Program as a condition of making that loan.3 Under the Act, the lending institution is responsible for determining whether a particular piece of property is located within a designated flood prone area.4

The lender may designate this responsibility to a third party, provided the information’s accuracy is guaranteed.5  Dobsa and Paul (“Plaintiffs”) filed an action against Landsafe in the United States Southern District Court of Mississippi, alleging that Landsafe negligently surveyed Dobsa’s home and erroneously determined that it was not located in a flood zone.

In a motion for summary judgment, Landsafe asserted that there was no genuine issue as to any material fact, whereby they are entitled to judgment as a matter of law because they were not in contractual privity with the Plaintiffs. Landsafe asserted that Countrywide, not Plaintiffs, hired Landsafe to survey the property, and thus, according to the motion, Plaintiffs have no standing to file suit against Landsafe.6

The District Court granted Landsafe’s motion, and Plaintiffs here contested that ruling before the United States Court of Appeals for the Fifth Circuit. The Circuit Court must reverse the District Court’s summary judgment ruling if it is determined that a reasonable jury could return a verdict in favor of the Plaintiffs.7

The Appellate Court’s Ruling
The court explained that the National Flood In­ surance Act does not create a private right of action against the third-party surveyor.8 Further, the Act does not create a standard for a state negligence per se suit.9

However, Dobsa asserts that her claim arises solely under Mississippi tort law. Landsafe alleged that Dobsa’s negligence claims must fail because Mississippi law does not impose a duty on Landsafe to provide Dobsa with a correct determination. Rather, Landsafe claims that its only duty was to provide a flood-area determination to Countrywide, who had selected them to perform the survey.10

The court declared that where there is no direct state precedent, a federal court must make its “best determination of what the state’s highest court would decide.”11

The Fifth Circuit cited to the case of Touche Ross & Co. v. Commercial Union Ins. Co.,where the Mississippi Supreme Court held that “an independent auditor is liable to reasonable foreseeable users of the audit85 who85detrimentally rely85[on the audit] [and] suffer a loss proximately caused by the auditor’s negligence.”12 In Hosford v. McKissack, the Court clarified Touche Ross in holding that liability is “‘to reasonably foreseeable users,’ not just to those who request the work.”13

In light of the decision in Hosford, the Fifth Circuit declared here that the proper inquiry did not surround privity of contract but rather the broad reach of the term “foreseeable users” under the law of Mississippi. In defining “foreseeable users,” Mississippi law departs from the majority view, espoused by the Louisiana Supreme Court opinion cited by Landsafe that affords standing only to a limited group of persons for whose benefit a given third-party determination was intended.14

Here, the Fifth Circuit concluded that statutorily-mandated purchasers such as Dobsa are foreseeable recipients of notice as to whether or not a flood hazard is present under Mississippi law. Accordingly, the court reversed the issuance of summary judgment to Landsafe by holding that there is a genuine issue of material fact as to whether Plaintiffs justifiably and detrimentally relied upon the erroneous flood-zone determination, whereby Plaintiffs have standing to pursue this cause of action against Landsafe in the trial court.

Among other issues for the trial court to address on remand is the validity and applicability of a disclaimer clause in the flood-zone determination that seeks to limit the land surveyor’s liability.

Endnotes:
1.   Paul v. Landsafe Flood Determination, Inc., 2008 U.S. App. LEXIS 25297 (5th Cir. Miss. Dec. 2, 2008).
2.   See 42 U.S.C. A7 4101(a).
3.   Id. at A7 4012a(b)1.
4.   Id. at A7 4104b(d).
5.   Id.
.   Paul, 2008 U.S. App. LEXIS 25297, at *3(citing Fed. R. Civ. P. 56(c)).
7.   Paul, 2008 U.S. App. LEXIS 25297, at *3(citing Delta & Pine Land Co. v. Nationwide Agri­business Ins. Co., 530 F.3d 395, 399 (5th Cir. 2008)).
8.   Paul, 2008 U.S. App. LEXIS 25297, at *5 (citing Till v. Unifirst Fed. Sav. & Loan Ass’n, 653 F2d 152, 161 (5th Cir. 1981)).
9.   Paul, 2008 U.S. App. LEXIS 25297, at *11.
10. Id. at *10-11.
11. Id. at *10.
. Paul, 2008 U.S. App. LEXIS 25297, at *11(citing Touch Ross & Co. v. Commercial Union Ins. Co., 514 So. 2d 315, 318 (Miss. 1987)).
13. Paul, 2008 U.S. App. LEXIS 25297, at *12 (citing Hosford v. McKissack, 589 So. 2d 108 (Miss. 1991)).
14. Paul, 2008 U.S. App. LEXIS 25297, at *1 (citing Barrie v. V.P. Exterminators, Inc., 625 So. 2d 1007 (La. 1993)).

University of Mississippi