Court: Louisiana Court of Appeal; July 12, 2017; Louisiana; State Appellate Court
FMB Development, LLC (FMB) appeals a July 18, 2016 judgment that granted summary judgment to Capital One N.A. and Capital One Financial Corporation, dismissing FMB's claims with prejudice. The case arises from five mortgage contracts, totaling $3,625,000, between FMB and Capital One for land development in New Orleans. An appraisal by Bird and Associates indicated the property was in "FEMA Flood Zone AO," and specified that the report was for Capital One's exclusive use. After Hurricane Katrina caused significant damage to the property, which lacked flood insurance, Capital One renewed FMB's loans, reducing the principal to $3,360,000 in March 2008. FMB subsequently executed a promissory note and two loan modification agreements in 2011 and 2012, which included a broad release clause. This clause stated that FMB released all claims against Capital One and its affiliates, effectively barring any future disputes related to the loans. The court affirmed the dismissal of FMB's claims against Capital One based on this release.
On May 16, 2013, FMB filed a Petition for Damages against Hibernia National Bank, Capital One Financial Corporation, and Bank South, claiming that Hurricane Katrina caused total flooding losses to FMB's mortgaged properties in August 2005. FMB alleged that the defendants breached Mortgage Contracts by not informing FMB that the properties were in a special flood hazard area, failing to notify FMB of required flood insurance amounts, and not procuring necessary flood insurance. On July 3, 2013, FMB added Capital One, N.A. as a defendant in a First Supplemental and Amended Petition. Capital One filed a Motion for Summary Judgment on August 24, 2015, arguing that FMB's claims were barred by res judicata due to prior loan modifications, that it had no contractual obligation to notify FMB about the flood hazard area or maintain flood insurance, and that it owed no fiduciary duty to FMB. The trial court held a hearing on July 18, 2016, and granted Capital One's Motion for Summary Judgment, dismissing FMB's claims with prejudice. FMB appealed, asserting four errors: the trial court incorrectly ruled the claims were barred by res judicata, failed to find a breach of contract, erred regarding a claim for detrimental reliance, and ruled that Capital One did not owe a fiduciary duty. The appellate court applies a de novo standard of review for summary judgment motions, adhering to the criteria in effect before the 2015 amendments to La. Code Civ. P. art. 966, which requires the movant to demonstrate no genuine issue of material fact exists. FMB's first assignment of error regarding res judicata is not discussed due to the resolution of the subsequent claims.
FMB's second assignment of error asserts that the trial court incorrectly found that Capital One had no duty to inform FMB that the Mortgaged Properties were in a special flood hazard area, which would enable FMB to obtain flood insurance. FMB argues that Capital One's obligation stems from the Mortgage Contracts and the National Flood Insurance Act. The relevant clause in the Mortgage Contracts mandates that the Mortgagor (FMB) must maintain insurance, including flood insurance if applicable, following notification from the Mortgagee (Capital One) that the property is in a special flood hazard area. However, Capital One points to contract language indicating it is not required to procure insurance if FMB fails to do so. The contract explicitly states that while the Mortgagor is responsible for maintaining insurance, the Mortgagee has no obligation to provide insurance if the Mortgagor defaults. Louisiana Civil Code articles clarify that contract interpretation hinges on the clear intent of the parties. Given the unambiguous contract language, FMB alone bore the responsibility for obtaining flood insurance, and there was no requirement for Capital One to notify FMB of the flood hazard designation.
Capital One is not contractually obligated to inform FMB about the Mortgaged Property's designation as a special flood hazard area or to purchase flood insurance on FMB’s behalf. This conclusion is supported by various legal precedents. FMB argues that Capital One should have notified them of the flood insurance requirement under the National Flood Insurance Act (NFIA), which aims to provide affordable flood insurance and mitigate the financial impact of flood disasters on the government. The NFIA mandates that lenders notify borrowers when a property is in a special flood hazard area and outlines the lender's responsibilities if the borrower fails to obtain insurance. However, courts have consistently ruled that borrowers lack a private right of action for NFIA violations, emphasizing that the NFIA primarily protects lenders and the federal government rather than borrowers. Legal interpretations highlight that the NFIA's purpose is to lessen the economic burden on the federal treasury and that enforcement of compliance lies with federal agencies rather than individual borrowers. Consequently, Capital One is entitled to summary judgment on FMB’s breach of contract claim.
FMB lacks a private right of action under the National Flood Insurance Act (NFIA) regarding Capital One’s failure to notify it about the property being in a special flood hazard area. Even if a state-law negligence action were theoretically available, FMB's claims are barred by prescription, as the lawsuit was filed in 2013, eight years post-Hurricane Katrina, and FMB did not provide sufficient facts to interrupt this prescription period.
Regarding detrimental reliance, FMB claims it relied on Capital One to notify it of the flood hazard status and insurance requirements. To prove detrimental reliance, FMB must demonstrate a representation by Capital One, justifiable reliance, and a detrimental change in position. However, FMB fails to establish the first element, as there is no evidence that Capital One made any promises to notify FMB or to purchase insurance on its behalf. Cases referenced support the dismissal of similar claims due to lack of evidence of such promises.
Lastly, FMB’s argument concerning breach of fiduciary duty is unfounded, as Louisiana law requires a written agency or trust agreement to establish a fiduciary relationship between a bank and its customer, which is not present in this case.
No financial institution or its employees are considered fiduciaries to customers or third parties, except when there is a written agreement stating such a role, as per La. R.S. 6:1124. In this case, there was no evidence that Capital One had agreed to act as a fiduciary, leading to the conclusion that FMB could not meet its burden of proof for a breach of fiduciary duty claim. Furthermore, any claim regarding a breach must be filed within one year of the breach's occurrence, and since FMB's lawsuit was filed in May 2013, the claim is time-barred. The trial court's decision to grant Capital One's Motion for Summary Judgment and dismiss FMB's claims was affirmed.
Additionally, the mortgages in question were originally with Hibernia National Bank, which was acquired by Capital One. There is a dispute over whether the loans were secured by the property's structures, with Capital One treating the property as "vacant land." The Mortgage Contracts, however, indicate that the encumbered property includes any present and future structures.
Regarding legislative updates, La. Code Civ. P. art. 966 was amended effective January 1, 2016, after Capital One's Motion for Summary Judgment was filed. The provisions of this amendment do not apply to pending motions. Most courts have ruled against state-law negligence claims based on NFIA violations, citing a lack of private right of action under the NFIA and the separation-of-powers doctrine. The Fifth Circuit and certain Louisiana federal courts have similarly rejected state-law negligence claims tied to NFIA breaches. In rare cases, the doctrine of contra non valentum may pause the prescription period if the plaintiff was unaware of the cause of action, even if their ignorance was not due to the defendant's actions.
