Class Action Alleging Companies Erroneously Advised Lenders that Homes were Outside Flood Zones Properly Dismissed because (1) Plaintiff Lacked Standing to Pursue Class Action Claims Against Companies that did not Provide Plaintiff’s Lender with Flood Zone Determination and (2) Company that Provided such Determination on Plaintiff’s Property owed Duties Only to Lender not Plaintiff Fifth Circuit Holds
After his home suffered floodwater damage from Hurricane Katrina, plaintiff filed a putative class action in Louisiana state court against numerous defendants that provide flood zone determinations to lenders; the class action alleged that defendants failed to properly determine whether homes were located within a Special Flood Hazard Area (SFHA), and sought damages under state law based on theories of negligence, failure to warn, detrimental reliance, and breach of guaranty or warranty. Audler v. CBC Innovis Inc., 519 F.3d 239, 2008 WL 509323 (5th Cir. 2008). Each claim in the class action complaint was “separate and apart from the federal flood insurance legislation governing lenders and… none of [the] claims arise under that legislation.” Id., at *3. In essence, the class action alleged that the class members failed to secure flood insurance because defendants erroneously advised them that their homes were outside a SFHA, so they were uninsured when Hurricane Katrina struck. Id., at *2. Defense attorneys removed the class action to federal court on the ground of diversity jurisdiction and under the Class Action Fairness Act of 2005 (CAFA), id., at *3. The defense then moved to dismiss the class action complaint for failure to state a claim and for lack of standing, id. The district court agreed with the defense arguments and dismissed the class action. Id. The Fifth Circuit affirmed.
Preliminarily, it bears noting that “[a] determination…that a property is not located within a SFHA does not prevent a borrower from purchasing private flood insurance.” Audler, at *2. The defendant involved in plaintiff’s loan (CBC) argued that it prepared flood zone determinations for the lender and that it owed no duties to the borrower in the loan transaction. Id., at *3. The other class action defendants argued that they were not involved in plaintiff’s loan and thus he lacked standing to prosecute any claims against them, id. Following dismissal of the class action complaint, plaintiff appealed to the Fifth Circuit; two defendants moved to dismiss the appeal for lack of standing. Id.
The Circuit Court addressed first the standing argument; specifically, the issue on appeal is “whether Audler has standing to assert claims on behalf of the potential class members against the Class Defendants, which have caused Audler no cognizable injury.” Audler, at *4. Because “’a litigant may not merely “champion the rights of another”’ ” and because “Audler’s claims against the Class Defendants are nothing more than attempts to assert the injuries of others,” the class action claims against the Class Defendants “must be dismissed for lack of standing.” Id. (citations omitted).
With respect to CBC’s motion to dismiss, the Fifth Circuit noted that CAFA required that the substantive law of Louisiana govern the court’s analysis. Audler, at *5. Unfortunately, Louisiana law did not address the question presented, requiring the Circuit Court to “make an educated ‘Erie guess’ as to how the Louisiana Supreme Court would resolve the issues before us.” Id. (citation omitted). The Circuit Court held that plaintiff’s negligence claims failed because CBC owed a duty of care only to plaintiff’s lender, not to plaintiff himself. See id., at *5-*9. This holding dictated the outcome of the district court’s ruling on plaintiff’s “failure to warn” claim, because “a cause of action for failure to warn does not exist unless there is an affirmative duty to provide a warning” and “CBC did not owe a duty to provide Audler with an accurate flood determination.” Id., at *10. As that central holding also influenced the Circuit Court’s ruling on the other issues on appeal, we do not summarize them here. Suffice it to say that the Fifth Circuit affirmed also the dismissal of plaintiff’s detrimental reliance and breach of guaranty/warranty claims, see id., at *10-*11, and additionally concluded that he was not a third party beneficiary of the contract between CBC and his lender, id., at *11. Accordingly, the Court affirmed the district court judgment.
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