United States Court of Appeals Fifth Circuit F I L E D REVISED AUGUST 15, 2005 July 25, 2005 IN THE UNITED STATES COURT OF APPEALS Charles R. Fulbruge III FOR THE FIFTH CIRCUIT Clerk
No. 04-20819
WENTWOOD WOODSIDE I LP,
Plaintiff-Appellant,
versus
GMAC COMMERCIAL MORTGAGE CORPORATION; ROYAL INDEMNITY COMPANY,
Defendants-Appellees.
Appeal from the United States District Court for the Southern District of Texas
Before GARWOOD, SMITH, and CLEMENT, Circuit Judges.
GARWOOD, Circuit Judge:
Wentwood Woodside I, L.P., a Texas limited partnership,
(Wentwood) brought this suit against Royal Indemnity Company
(Royal), which carried the excess property damage insurance on
the apartments Wentwood owned, and against GMAC Commercial
Mortgage Corporation (GMAC), which serviced the mortgage on
Wentwood’s apartments, to recover under Texas law for flood damage to the apartments sustained during Tropical Storm Allison
in June of 2001. The district court granted summary judgment to
both Royal and GMAC on all causes of action. We affirm.
I.
CONTEXT FACTS AND PROCEEDINGS BELOW
Wentwood is a single-asset limited partnership organized
under the laws of Texas. It was formed for the purposes of
profitably owning the Woodside Village Apartments (Woodside
Village) in Houston, Texas. On December 30, 1996, Wentwood, as
sole grantor, executed a deed of trust with Column Financial,
Incorporated, the deed of trust beneficiary, in order to finance
Wentwood’s purchase of the Woodside Village.
The indebtedness secured by the deed of trust was acquired
(and possibly initially funded) by a New York common law trust
structured as a real estate mortgage investment conduit (REMIC).
Neither this REMIC nor Column Financial is a federally regulated
lending institution. The trustee for the REMIC is LaSalle Bank
of Chicago. LaSalle merely holds the REMIC’s assets in trust, is
not the lender, and is not at risk in the event of default by any
of the REMIC’s debtors, including Wentwood. The deed of trust
covers no property other than Woodside Village and secures no
indebtedness other than Wentwood’s $5,950,000 indebtedness
incurred in its purchase of Woodside Village. The deed of trust
expressly requires Wentwood to maintain adequate insurance on
2 Woodside Village. The only address for Wentwood stated in the
deed of trust is 3811 Turtle Creek Boulevard, Suite 450, Dallas,
Texas 75219. GMAC services the indebtedness secured by the deed
of trust.
Wentwood is, in some not precisely identified manner,
affiliated and under common control with a number of other
separate partnerships owning other apartment buildings (over 50
in all) across the country, including seven other single-asset
partnerships each of which owns a different apartment building in
Houston. Among these seven other single-asset partnerships (each
owning other Houston apartment buildings) were Wentwood Hartford
D Partners (Wentwood Hartford) and Wentwood St. James, L.P.
(Wentwood St. James). Woodside Village and the other seven
Houston properties were at all relevant times managed by Pinnacle
Realty Management Company (Pinnacle) in Tacoma, Washington.
On April 20, 2000, the Federal Emergency Management Agency
(FEMA) redrafted its flood insurance rate map for the Houston
area. Under this change, the Woodside Village became included
within Flood Zone A, a special flood hazard area (SFHA). On
September 14, 2000, FEMA published its revisions, including the
one affecting the Woodside Village, in the Federal Register. 65
F.R. 55526-03.
On September 19, 2000, GMAC sent a letter to Wentwood
Hartford, informing it that its property was in an area that had
3 been designated an SFHA. GMAC explained, though without citing
any contractual language, that Wentwood Hartford was required by
its mortgage (which GMAC serviced) to provide GMAC with evidence
of adequate flood insurance.1 If such evidence was not
forthcoming, the letter stated, GMAC would procure such insurance
at Wentwood Hartford’s expense. GMAC sent an essentially
identical separate letter on the same day to Wentwood St. James,
likewise informing it that its property in Houston was in an area
designated an SFHA. GMAC did not send such a letter to Wentwood
even though the Woodside Village was also in an SFHA as a result
of FEMA’s April 2000 changes to its rate maps.
GMAC addressed this correspondence specifically to Wentwood
Hartford and Wentwood St. James but the letters were sent in care
of Pinnacle to the latter’s Tacoma address. Once the letters
were received by Pinnacle, they were forwarded to Janet Barnes,
who was at the time the risk manager for Boreal Properties,
L.L.C. (Boreal), a company affiliated with Pinnacle that worked
on the eight Houston properties as an independent contractor.
Barnes states in her affidavit that she was responsible for
maintaining insurance for the Houston properties. There is no
evidence that Barnes took any immediate action following receipt
1 The mortgage documents of the seven other Houston properties are not in the record. An affidavit of Wentwood’s attorney states, “on information and belief,” that each of the eight separate loans on the eight separate Houston properties is included in the same REMIC and that all loans in the REMIC are serviced by GMAC.
4 of GMAC’s letters.
At some point in late 2000, a firm named Graoch Associates
(Graoch), acting on behalf of the affiliated group of
partnerships which included Wentwood, retained Lockton Companies,
Incorporated (Lockton) to purchase a single excess property
insurance policy covering all of the properties, including the
Woodside Village, owned by all the various partnerships
(including Wentwood) with which Wentwood was affiliated and under
common control. Lockton entered into negotiations with Richard
McAdam, a property underwriter for Royal Specialty Underwriting,
Incorporated, to purchase excess insurance from Royal. Royal’s
standard form excess property insurance policy generally covered
flood damage but excluded from that coverage any property located
in an SFHA. An exception to this exclusion could be purchased
for an additional premium.
During the underwriting process, McAdam specifically asked
Lockton whether any of the properties was located in an SFHA. As
reflected in the policy itself, Lockton only identified three
properties as being in an SFHA, one each in Ohio, North Carolina,
and Texas. The sole Texas property so identified was the Houston
property owned by Wentwood St. James, which was the subject of
one of GMAC’s letters. Lockton did not, however, identify either
the property owned by Wentwood Hartford, which was the subject of
GMAC’s other letter, or, more importantly, the Woodside Village
5 owned by Wentwood.
From the policy’s inception forward, the Royal policy’s
Excess Physical Damage Schedule read in its entirety as follows:
“Perils Covered: All Risk including Flood and Earthquake except excluding California Earthquake and excluding Flood in Zone A or V except at: 1) 2400 West Shore Blvd. Columbus, OH, 2) 215 Rippling Stream Rd., Durham, NC, 3) 9109 Fondron [sic] Road, Houston, TX.”
Consequently, when Graoch purchased its one-year excess policy
from Royal, which became effective on November 27, 2000, the
Woodside Village did not have excess coverage for floods and the
premium paid by Graoch did not incorporate the risk of insuring
the Woodside Village against flood damage. The parties do not
dispute that Wentwood breached its express duty under the deed of
trust to maintain full replacement cost flood insurance.2
In the spring of 2001, Graoch decided to switch primary
carriers. It purchased a one year policy from Lexington
Insurance Company (Lexington), effective April 28, 2001, with a
$1,000,000 limit. The Lexington primary policy included full
flood coverage and did not exclude properties in an SFHA. Thus,
the Woodside Village continued to have primary flood insurance,
but still did not have any excess flood coverage.
2 The deed of trust requires that whenever the property is in an area designated by FEMA as SFHA (including either Zone A or Zone V) the grantor at its expense must maintain flood insurance equal to 100% of the replacement cost of the improvements or the maximum flood insurance available, whichever is less.
6 On June 9, 2001, Tropical Storm Allison came ashore in the
Houston area. The Woodside Village was severely flooded and
sustained more than four million dollars in damage. Wentwood
filed a claim with Lexington four days later and Lexington
promptly paid its policy’s full $1,000,000 limit. Wentwood next
filed a claim with Royal under its November 27, 2000 excess
policy purchased by Graoch. Royal refused to pay, however,
because it determined that the Woodside Village was in an SFHA
and Graoch had not purchased the additional coverage necessary
for such a property.
In July 2002, Wentwood filed a three-count complaint in a
Texas court alleging breach of contract by Royal, violation by
Royal of the Texas Insurance Code, and breach by GMAC of an
assumed duty to notify Wentwood in the event that the Woodside
Village fell within an SFHA. The case was timely removed on
August 13, 2002 to the district court below. In November 2002,
Wentwood filed an amended complaint which pleaded two additional
causes of action against GMAC for negligence per se under Texas
law in failing to abide by its asserted federal statutory duty
under 42 U.S.C. § 4012a to ensure that properties in SFHAs were
adequately covered, and violation of section 4012a. The district
court granted summary judgment to Royal on September 12, 2003,
7 and then to GMAC on August 31, 2004.3 The district court had
also, in February 2004, denied Wentwood’s motion, filed in
November 2003 after the court rendered its September 2003 adverse
summary judgment order, to file a further amended complaint
against Royal.
It is from these dispositions that Wentwood appeals.
II.
ROYAL
Wentwood appeals the grant of summary judgment in favor of
Royal on the ground that Wentwood’s initial failure to insure the
Woodside Village was a mistake that is excused by the Errors and
Omissions clause of the underlying primary policy. Wentwood also
appeals the decision of the district court not to permit it to
file an amended complaint against Royal after the adverse summary
judgment had been entered.
A. The Summary Judgment for Royal
i. Standard of Review
A grant of summary judgment is reviewed de novo under the
3 Judge Hughes generally referred the case to Magistrate Judge Crone in September 2002. The parties thereafter agreed to trial before and disposition by Judge Crone, who presided over the first phase of this case and entered summary judgment in favor of Royal. Judge Crone was then confirmed to a district judgeship in another district and on October 7, 2003, the case was returned to Judge Hughes, who entered summary judgment in favor of GMAC. Thereafter Judge Hughes on September 6, 2004 entered final judgment under Rule 58 that Wentwood take nothing from Royal and GMAC. We generally refer to Judges Crone and Hughes collectively as the district court.
8 same standard applied by the district court. Terrebonne Parish
Sch. Bd. v. Mobil Oil Corp., 310 F.3d 870, 877 (5th Cir. 2002).
ii. Discussion
Wentwood concedes, as it must, that the Royal policy Graoch
purchased did not identify the Woodside Village as a property to
be excepted from Royal’s blanket exclusion from flood coverage of
any property in an SFHA. This is not a mere misdescription in
the policy of the coverage upon which Graoch and Royal agreed and
for which Graoch paid. Rather, Graoch never asked for SFHA
coverage for the Woodside Village and never paid for such
coverage.
Wentwood contends, however, that this failure to insure the
Woodside Village was an oversight that is nullified by the Errors
and Omissions clause of Lexington’s primary policy. This clause
provides:
“Any unintentional error or omission made by the Insured shall not void or impair the insurance hereunder provided the Insured reports such error or omission as soon as reasonably possible after discovery.”
Wentwood argues that the Errors and Omissions clause was
incorporated into the Royal policy by its Maintenance of Primary
Insurance clause, which provides:
“In respect of the perils hereby insured against, this Policy is subject to the same warranties, terms and conditions (except as regards the premium, the amount and limits of liability other than the deductible or self- insurance provision where applicable, and the
9 renewal agreement, if any; and EXCEPT AS OTHERWISE PROVIDED HEREIN) as are contained in or as may be added to the policy/ies of the primary insurer(s) prior to the happening of a loss for which claim is made hereunder, and should any alteration be made in the premium for the policy/ies of the primary insurer(s), then the premium hereon shall be adjusted accordingly.”
(italics added, capitals in original).
Wentwood asserts repeatedly throughout its brief that its
failure to insure the Woodside Village was the result of its
unintentional error when purchasing the excess policy from Royal.
The summary judgment evidence, however, shows only that the Royal
policy was purchased by Graoch. Presumably, therefore, the only
relevant errors or omissions are those committed by Graoch.
There is, however, no evidence whatsoever that Graoch’s
agent, Lockton, did not know that the Woodside Village was in an
SFHA or, if the agent did not know that, that the agent would
have purchased the additional insurance if he or she had known
that the property was in an SFHA. There is evidence that Barnes
did not know the Woodside Village was in an SFHA when Graoch
bought the policy, but there is no basis in the record for
treating Barnes’ knowledge, or lack thereof, as equivalent to
Graoch’s or Lockton’s knowledge. All we know of Barnes from her
affidavit is that her firm, Boreal, was retained by Pinnacle to
“provide[] risk management services as an independent contractor
to the [eight Houston-area properties].” Yet neither Boreal, nor
10 Pinnacle, nor Wentwood itself purchased the Royal policy.
Nevertheless, even if we assume that there was an “unintentional
error or omission made by the Insured” in respect to not
procuring flood coverage for its Woodside Village under the Royal
policy, the Maintenance of Primary Insurance clause in Royal’s
excess policy only incorporates the terms of the underlying
Lexington primary policy “[i]n respect of perils hereby insured
against.” As noted earlier, however, the Excess Physical Damages
Schedule, which listed “Perils Covered,” did not include as a
covered peril the flooding of any property within an SFHA other
than three enumerated exceptions, none of which was the Woodside
Village. Therefore, by the plain terms of the above-quoted
language, the Errors and Omissions clause was not incorporated
into the Royal policy with respect to flood damage in an SFHA
unless, unlike in the instant case, the special exception was
purchased. Sulzer Carbomedics v. Or. Cardio-Devices, Inc., 257
F.3d 449, 457 (5th Cir. 2001) (stating that an unambiguous
contract “must be enforced as written, looking at the objective
intent as manifested by the language used, rather than
interpreting it by attempting to divine the subjective intent of
the parties.”) (citing Sun Oil Co. v. Madeley, 626 S.W.2d 726,
731 (Tex. 1981)).
This analysis underscores the central defect in Wentwood’s
contract claim against Royal. The undisputed facts of this case
11 establish that Graoch simply never purchased excess flood
insurance for the Woodside Village. Indeed, in response to a
direct inquiry about properties in an SFHA, Lockton did not
identify the Woodside Village and the premium Graoch paid did not
include the risk of insuring the Woodside Village against flood
damage. Regardless of whether we ascribe this error to Wentwood
or Graoch, such an error is properly characterized as a
unilateral mistake in purchasing insurance. Under Texas law, the
unilaterally mistaken party alone bears responsibility for the
consequences of its error. See, e.g., Holley v. Grigg, 65 S.W.3d
289, 295 (Tex. App. – Eastland, 2001, no writ); Oldaker v.
Travelers Ins. Co., 497 S.W.2d 402, 404 (Tex. App. – El Paso,
1973, no writ); GeoSouthern Energy Corp. v. Chesapeake Operating,
Inc., 274 F.3d 1017, 1021 (5th Cir. 2001) (citations omitted)
(stating that equitable reformation of a contract is available
only when a mutual mistake in drafting prevents the written
instrument from reflecting the meeting of the minds).
Nevertheless, even if we were to assume that the Errors and
Omissions clause was incorporated into the Royal policy with
respect to the Woodside Village, it still would not apply. The
Errors and Omissions clause states that an unintentional error
will not “void or impair the insurance hereunder[.]” The Errors
and Omissions clause, in other words, applies only to insured
risks. Yet, for the reasons discussed above, there was no
12 “insurance hereunder” with respect to flood damage because Graoch
never purchased such insurance for the Woodside Village.
The cases Wentwood cites for the proposition that the Errors
and Omissions clause applies are distinguishable on their facts.
For example, in Rosa v. The Ins. Co. of Penn., 296 F. Supp. 167
(S.D. Cal. 1969), an insurer tried to avoid paying for the loss
of cargo that went down with a fishing vessel on the ground that
the cargo had not been reported via radio as required under the
policy. The vessel was not able to report its cargo, however,
because it was crippled by the storm that would eventually claim
it. The district court ruled that the failure to report was
excused by the Errors and Omissions clause of the policy because
there was no evidence that the vessel’s crew did not intend to
report. The obvious distinction between Rosa and the instant
case is that there was no dispute in Rosa that cargo insurance
had been purchased and a premium paid. As such, an unintentional
violation of a policy technicality was not construed to impair
coverage. In the instant case, on the other hand, there was no
insurance coverage and no premium was ever paid.4
4 Other cases relied on by Wentwood are likewise distinguishable. In Conagra, Inc. v. Arkwright Mut. Ins. Co., 64 F. Supp. 2d 754 (N.D. Ill. 1999), Conagra sought to recover for property that was destroyed in a fire but not properly listed in the policy. The district court ruled that the Errors and Omissions clause in that case, which specifically addressed errors or omissions in the listings of covered properties, id. at 760, and is substantively different from the language of the Errors and Omissions clause in the instant case, would correct a
13 In light of the conclusion that Wentwood never insured the
Woodside Village against flood damage, Wentwood’s lawsuit is in
effect an attempt to retroactively purchase excess insurance for
a loss that has already been realized. In Simon v. National
Union Fire Insurance Co., 782 N.E.2d 1125 (Mass. App. Ct. 2003),
the court held, respecting a fire insurance policy’s “‘errors and
omissions’ clause”, that “such a standard clause does not permit
an insured to obtain insurance coverage for an uncovered loss
that has already occurred.” Id. at 1128. Such an approach is
plainly consistent with and supported by the general principle of
Texas law that risk is an essential element of an insurance
contract, meaning that insurers insure against future losses
whose probability of occurrence is less than one hundred percent.
45 Tex. Jur. 3d, Insurance Contracts and Coverage §§ 18-19
(citing Texas cases). Where, as here, on the other hand, the
misdescription of otherwise insured property. What the Errors and Omissions clause would not do, the district court stated, is rescue Conagra if it had indeed deliberately omitted a property from the insurance schedule. Id. at 761-62. Thus, to the extent that Conagra applies at all to the instant case, it is to suggest that, as here, a deliberate, though mistaken, choice not to cover certain property will not be remedied by an Errors and Omissions clause. St. Paul Fire & Marine Ins. Co. v. Gen. Mut. Ins. Co., 213 So. 2d 856 (Ala. 1968), is distinguishable insofar as it concerned a failure to renew an existing policy and was decided under an Errors and Omissions clause that expressly contemplated an unintentional failure to renew. In the instant case, on the other hand, Wentwood did not inadvertently fail to renew existing coverage. Graoch failed altogether to insure the Woodside Village against flood damage when it purchased the excess policy from Royal.
14 insured knows that the loss has already been sustained, the
element of risk is absent. Given that all parties were always
aware that Woodside Village was not exempted from the Royal
policy’s Flood Peril exclusion, and given the “insurance provided
hereunder” language of the primary policy’s Errors and Omissions
clause and the “in respect of the perils hereby insured against”
and “except as otherwise provided herein” language of the Royal
excess policy, this case is a particularly appropriate one for
application of the rule stated in Simon.
The district court correctly denied Wentwood recovery on the
Royal policy.5
B. Denial of leave to file Second Amended Complaint against Royal
Wentwood contends that the district court erred in failing
to allow a second amended complaint which would have added a
claim against Royal over a month after summary judgment had been
granted to Royal. Wentwood’s proposed second amended complaint
alleges for the first time a claim of negligence against Royal,
asserting that Lockton was Royal’s agent, that Lockton was
negligent in failing to have Woodside Village listed as an
exception to the Flood Peril exclusion in the Royal policy and
that Royal is responsible for Lockton’s negligence under the
5 The failure of Wentwood’s breach of contract claim is fatal to its extra-contractual claims against Royal. Wentwood does not contend otherwise.
15 doctrine of respondeat superior. The proposed amended complaint
does not seek to add Lockton as a defendant. Wentwood admitted
that it was its understanding, well before its first amended
complaint was filed in November 2002, that Lockton was Royal’s
agent, and it does not assert that it thereafter discovered new
facts relevant to the new respondeat superior claim. However,
Wentwood maintains that it could not have asserted this claim in
its first amended complaint because such claim did not become
“ripe” until the magistrate judge concluded as a matter of law
that no insurance coverage existed.
Denial of leave to amend a complaint under FED. R. CIV. P.
15(a) is reviewed for an abuse of discretion. Smith v. EMC
Corp., 393 F.3d 590, 595 (5th Cir. 2004).
This case was removed on August 13, 2002, and assigned to
the magistrate judge on September 19, 2002. On October 24, 2002,
the magistrate judge issued a scheduling order setting May 19,
2003 as the deadline for amending pleadings. Wentwood filed its
first amended complaint on November 26, 2002. The premise behind
this complaint was that Royal’s excess policy, through the
primary policy’s incorporated Errors and Omissions clause,
covered the Woodside Village. Wentwood did not plead in the
alternative, as it is entitled to do under FED. R. CIV. P.
16 8(e)(2), that Royal was vicariously liable to it for the
negligence of its alleged agent, Lockton, in failing to secure
coverage at all. Wentwood, in other words, could have, but
deliberately chose not to, assert in its November 2002 first
amended complaint an alternative vicarious liability claim
On December 18, 2002, Wentwood filed its motion for summary
judgment against Royal. Royal responded with a cross-motion for
summary judgment on January 7, 2003. On September 12, 2003, the
magistrate judge granted summary judgment for Royal and denied
the same to Wentwood. On October 7, 2003, the reference to the
magistrate judge was vacated and the case returned to the
presiding district judge. On November 12, 2003, two months after
summary judgment had been granted to Royal, Wentwood filed a
motion for reconsideration of the magistrate judge’s summary
judgment order. On that same day, Wentwood also sought leave to
file a second amended complaint alleging the cause of action
against Royal for vicarious liability. The district court denied
both motions in a short order explaining that there was no basis
permitting a new complaint because Wentwood was simply offering a
new theory of recovery against Royal.
Wentwood’s appeal on this score is plainly not well taken.
Wentwood could have, but did not, plead its cause of action
17 against Royal in the alternative,6 and it was therefore hardly an
abuse of discretion for the district court to deny Wentwood a
post-summary judgment opportunity to present its claims against
Royal. Freeman v. Continental Gin Co., 381 F.2d 459, 470 (5th
Cir. 1967) (“We hold that a district court does not abuse its
discretion in refusing to allow amendment of pleadings to change
the theory of a case if the amendment is offered after summary
judgment has been granted against the party, and no valid reason
is shown for failure to present the new theory at an earlier
time.”); Rosenzweig v. Azurix Corp., 332 F.3d 854, 865 (5th Cir.
2003) (“‘A busy district court need not allow itself to be
imposed upon by the presentation of theories seriatim.’”)
(quoting Freeman); Briddle v. Scott, 63 F.3d 364, 380 (5th Cir.
1995) (same). There was no abuse of discretion in the denial of
Wentwood’s belated motion to file its second amended complaint.
III.
GMAC
On appeal, Wentwood pursues only two theories of recovery
against GMAC. First, Wentwood contends that GMAC assumed a
common law duty to notify it when a revision to FEMA’s flood maps
placed the Woodside Village in an SFHA. Second, Wentwood argues
6 Indeed, its proposed second amended complaint did just that.
18 that GMAC’s failure to discharge an alleged statutory duty under
the National Flood Insurance Act, 42 U.S.C. § 4001 et seq., gave
rise to a cause of action under Texas law for negligence per se.
A. Standard of Review
See supra § II(A)(i).
B. Discussion
i. Assumed Duty to Notify
Wentwood does not dispute that it breached its own
contractual duty under the deed of trust to secure the coverage
for the Woodside Village required by the terms of the deed of
trust. It argues that its own failure is not relevant to GMAC’s
concurrent failure to discharge the duty it allegedly assumed to
notify Wentwood of changes to FEMA’s flood maps.
In particular, Wentwood contends that GMAC is liable to it
under section 323 of the Restatement (Second) of Torts, which
One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of the other’s person or things, is subject to liability to the other for physical harm resulting from his failure to exercise reasonable care to perform his undertaking, if:
(a) his failure to exercise such care increases the risk of such harm, or
(b) the harm is suffered because of the other’s reliance upon the undertaking.
See, e.g., Colonial Sav. Ass’n v. Taylor, 544 S.W.2d 116, 120
19 (Tex. 1976) (affirming Texas’ adoption of section 323);
Torrington Co. v. Stutzman, 46 S.W.3d 829, 838 (Tex. 2000)
(same). Wentwood contends that GMAC assumed a duty to it when,
in September 2000, it sent separate letters to Wentwood Hartford
and to Wentwood St. James notifying those two partnerships that
their properties were affected as a result of the April 2000
changes to the Houston-area FEMA maps.
This contention is not, however, consistent with the plain
language of section 323. That section clearly states that where
one “undertakes . . . to render services to another which he
should recognize as necessary for the protection of the other’s
. . . things” he may be “subject to liability to the other”
(emphasis added). Plainly, the only potential liability
addressed is liability to the party the defendant undertook to
render services to. Yet it is undisputed in this case that GMAC
did not render or undertake any notification services to
Wentwood. Torrington, 46 S.W.3d at 837 (“Texas law generally
imposes no duty to take action to prevent harm to others absent
special relationships or circumstances.”); Fort Bend County
Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 396 (Tex. 1991);
Restatement (Second) of Torts § 314. GMAC only notified the
affiliated but nevertheless legally separate and distinct
independent partnerships, Wentwood Hartford and Wentwood St.
James. Indeed, the letters GMAC sent were addressed specifically
20 to these two partnerships.7 The only grantor and the only debtor
in the deed of trust is Wentwood Woodside I, L.P. The only
property covered by the deed of trust is Woodside Village. The
only indebtedness secured thereby is the $5,950,000 debt for the
Woodside Village acquisition. The deed of trust does not mention
any other indebtedness, nor any property other than Woodside
Village, nor does it mention Wentwood Hartford or Wentwood St.
James or give any indication that Wentwood Woodside I, L.P., is a
party of any affiliated group of entities; neither Wentwood
Hartford nor Wentwood St. James has any interest in Woodside
Village (so far as this record shows) or any liability on the
indebtedness secured by the deed of trust thereon; nor (so far as
this record shows) does Wentwood Westside have any interest in
any of the properties owned by Wentwood Hartford or by Wentwood
St. James or any liability on any indebtedness secured by any
such property. GMAC’s notification to Wentwood Hartford
concerning its property and to Wentwood St. James concerning its
property does not constitute GMAC’s having undertaken the
7 Wentwood implies in its brief that GMAC’s letters were sent to Pinnacle, not Wentwood Hartford and Wentwood St. James. Wentwood considers this significant because, in sending letters to Pinnacle about two properties in Houston owned by affiliated partnerships, GMAC was obligated to notify Pinnacle about all of the Houston properties owned by any affiliated partnership that were affected by the FEMA map changes. GMAC sent two letters addressed specifically to Wentwood Hartford and Wentwood St. James, respectively. These letters were sent in care of Pinnacle at Pinnacle’s address in Tacoma, but this does not negate that the letters were addressed to two specific recipients. The deed of trust does not mention Pinnacle or any address in Tacoma.
21 rendition of any services to Wentwood Woodside. Cf. Turlington
at 839 (“a person’s duty [under § 323] to exercise reasonable
care in performing a voluntarily assumed undertaking is limited
to that undertaking”) (inside quotation marks and citation
omitted).8 Thus, the law Wentwood cites is unavailing on its
face.
Wentwood tries to salvage its section 323 claim against GMAC
by recasting it as a section 324A claim, arguing that Wentwood is
somehow a third-party injured by GMAC’s correspondence sent to
Wentwood Hartford and Wentwood St. James.9 Wentwood cites
8 We also note that there is no basis for concluding that GMAC should have realized that notification of Wentwood Westside was “necessary for the protection of” Wentwood Westside’s property, namely Woodside Village. Under the deed of trust, it was plainly the obligation of Wentwood Westside to be so informed. The information had been publically knowable since April 2000, and published in the Federal Register since September 2000, the latter date being over two months before the Royal policy was issued and over six months before the flooding, and was never uniquely available to GMAC. Moreover, there is no indication that GMAC had ever informed Wentwood Woodside that Woodside Village (or any other property of Wentwood Woodside) was (or was not) within an SFHA or that GMAC would keep track of that for Wentwood Woodside. Finally, although in September 2000 GMAC did inform Wentwood Hartford that its property, and Wentwood St James that its property, was in an SFHA, only one of those two separate properties was listed as an exception to the Flood Peril exclusion in the November 2000 Royal policy. 9 Section 324A reads:
“One who undertakes, gratuitously or for consideration, to render services to another which he should recognize as necessary for the protection of a third person or his things, is subject to liability to the third person for physical harm resulting from his
22 Brownsville Navigation District v. Izaguirre, 800 S.W.2d 244
(Tex. App. – Corpus Christi, 1990) rev’d in other respects, 829
S.W.2d 159 (Tex. 1992), for the proposition that GMAC is liable
under section 324A. Brownsville, however, is completely
inapposite. In that case, the defendant, a railroad and its
truck line, treated by the court collectively as one entity,
furnished a trailer to a trucking company to pick up some large
steel coils at a warehouse and return them to the railroad for
further shipment. The defendant furnished the warehouse with
instructions on how the coils were to be loaded and tied down in
the trailer; the instructions, however, were affirmatively unsafe
and contrary to applicable federal regulations. In loading the
coils, warehouse employees followed the faulty instructions the
defendant negligently gave the warehouse for that purpose, and as
a result, the plaintiff, one of the warehouse employees loading
failure to exercise reasonable care to protect his undertaking, if
(a) his failure to exercise reasonable care increases the risk of such harm, or
(b) he has undertaken to perform a duty owed by the other to the third person, or
(c) the harm is suffered because of reliance of the other or the third person upon the undertaking.”
Restatement (Second) of Torts § 324A.
23 the coils, was injured. The Browsville court held that this was
a valid basis on which to hold the defendant liable.
Browsville has no relevance to the instant case. Here there
is no evidence that GMAC was negligent with respect to either
Wentwood Hartford or Wentwood St. James, nor did it undertake to
perform any services to them which it did not perform.10 Again,
as previously explained, GMAC’s notification to Wentwood
Hartford, and its notification to Wentwood St. James, do not
constitute GMAC’s having undertaken the rendition of the service
of notification to Wentwood Westside concerning Woodside Village.
See also note 8 supra and accompanying text.
There is no summary judgment evidence sufficient to support
a judgment that GMAC breached a common law duty to Wentwood.
ii. Negligence per se
Wentwood contends that GMAC was negligent per se under Texas
law when GMAC failed to notify Wentwood that the Woodside Village
fell within a revised FEMA SFHA map because this failure was
allegedly a violation of a federal statutory duty imposed on
GMAC. Wentwood locates this duty in a provision of the National
Flood Insurance Program, 42 U.S.C. § 4011 et seq. Wentwood
directs our attention in particular to the following language:
Ҥ 4012a. Flood insurance purchase and
10 Wentwood’s other case, Rudolph v. ABC Pest Control, Inc., 763 S.W.2d 930 (Tex. App. – San Antonio 1989, writ denied), is similarly distinguishable.
24 compliance requirements and escrow accounts *** (b) Requirement for mortgage loans.
(1) Regulated lending institutions
Each Federal entity for lending regulation (after consultation and coordination with the Financial Institutions Examination Council established under the Federal Financial Institutions Examination Council Act of 1974) [12 U.S.C. § 3301 et seq.] shall by regulation direct regulated lending institutions not to make, increase, extend, or renew any loan secured by improved real estate or a mobile home 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 [42 U.S.C. § 4001 et seq.], 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 or the maximum limit of coverage made available under the Act with respect to the particular type of property, whichever is less. *** (e) Placement of flood insurance by lender.
(1) Notification to borrower of lack of coverage If, at the time of origination or at any time during the term of a loan secured by improved real estate or by a mobile home located in an area that has been identified by the Director (at the time of the origination of the loan or at any time during the term of the loan) as an area having special flood hazards and in which flood insurance is available under the National Flood Insurance Act of 1968 [42 U.S.C. § 4001 et seq.], the lender or servicer for the loan determines that the building or mobile home and any personal property securing the loan is not covered by flood insurance or is
25 covered by such insurance in an amount less than the amount required for the property pursuant to paragraph (1), (2), or (3) of subsection (b) of this section, the lender or servicer shall notify the borrower under the loan that the borrower should obtain, at the borrower's expense, an amount of flood insurance for the building or mobile home and such personal property that is not less than the amount under subsection (b)(1) of this section, for the term of the loan. (2) Purchase of coverage on behalf of borrower If the borrower fails to purchase such flood insurance within 45 days after notification under paragraph (1), the lender or servicer for the loan shall purchase the insurance on behalf of the borrower and may charge the borrower for the cost of premiums and fees incurred by the lender or servicer for the loan in purchasing the insurance. *** (4) Applicability This subsection shall apply to all loans outstanding on or after September 23, 1994.”
That statute does not apply to this case. The plain
language of section 4012a establishes that it applies only to
“regulated lending institutions” that are regulated in the sense
that they are subject to the oversight of a “Federal entity for
lending regulation[.]” Barnhart v. Sigmon Coal Co., 122 S. Ct.
941, 950 (2002) (“As in all statutory construction cases, we
begin with the language of the statute.”). Wentwood does not
dispute that GMAC is not the lender in this case. Wentwood also
does not dispute that neither Column Financial nor the REMIC is a
federally regulated lender. Wentwood tries to bring this case
within the ambit of section 4012a solely by observing that
26 LaSalle Bank, which presumably is a federally regulated lending
institution, holds the mortgages in the REMIC as trustee.
LaSalle’s status as trustee is irrelevant, however, because being
a trustee does not constitute LaSalle as having any equity
interest or investment in the loans and does not make LaSalle
responsible for the loans in the event of default. Section 4012a
is concerned with the risk to the public treasury created by
federally backed or regulated loans for real property that are
not protected by adequate flood insurance. Till v. Unifirst Fed.
Sav. & Loan Ass’n, 653 F.2d 152, 159 (5th Cir. 1981) (“Congress
was interested [in enacting section 4012a] in protecting the
lending institutions whose deposits the federal regulatory
agencies insured.”).11
11 Furthermore, even if we assume that the statute applies, it is by no means clear that section 4012a imposes an affirmative duty on servicers to audit the mortgages they service to ensure that they are adequately insured. The statute provides in relevant part that “If,...at any time during the term of a loan[,]...the servicer for the loan determines that the [SFHA property] is not covered by flood insurance...the servicer shall notify the borrower [of this deficiency.]” 42 U.S.C. § 4012a(e)(1) (emphasis added). Significantly, the statute does not require a servicer to know that a serviced property has been designated as being within an SFHA. Rather, the statute creates a duty of notification only if the servicer learns that the serviced property falls within an SFHA. By using the conditional “if,” the statute implicitly contemplates that there will be circumstances in which a servicer does not determine that an under-insured SFHA property is in fact under-insured. Therefore, contrary to Wentwood’s position, the statute cannot be read to impose an unconditional duty on servicers to determine whether their serviced properties are adequately insured against flood damage.
27 In any case, even if we assume that GMAC is subject to the
statute and that it had an affirmative duty of notification,
Wentwood still cannot prevail under Texas law. “The threshold
questions in every negligence per se case are whether the
plaintiff belongs to the class that the statute was intended to
protect and whether the plaintiff’s injury is of a type that the
statute was designed to prevent.” Perry v. S.N., 973 S.W.2d 301,
305 (Tex. 1998). Neither the Texas Supreme Court, nor indeed any
of the courts of Texas, has ever considered whether a plaintiff
like Wentwood belongs to the class that section 4012a protects.
We must, therefore, make an Erie “guess” about how the Texas
Supreme Court would answer this question. See, e.g., Primrose
Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 564-65 (5th
Cir. 2003).
In making such a “guess,” we begin where we believe the
Texas Supreme Court would begin; namely, with the decisions of
the federal courts in general and this court in particular.
Every single federal court to consider whether a federal private
right of action arises under section 4012a has concluded that the
federal treasury, not individual mortgagors like Wentwood, is the
class the statute intends to protect. See, e.g., Till, 653 F.2d
at 159-61; Hofbauer v. Northwestern Nat’l Bank, 700 F.2d 1197,
1201 (8th Cir. 1983); Arvai v. First Fed. Sav. & Loan Ass’n, 698
F.2d 683, 684 (4th Cir. 1983); Mid-America Nat’l Bank of Chicago
28 v. First Sav. & Loan Ass’n of South Holland, 737 F.2d 638, 642
(7th Cir.) cert. denied 105 S. Ct. 911 (1984). In our view, the
Texas Supreme Court would construe 42 U.S.C. § 4012a in a manner
consistent with the unanimous conclusion of the federal
judiciary. Therefore, having “guessed” that the Texas Supreme
Court would not treat mortgagors as the protected class, we hold
that section 4012a does not give rise to a private right of
action under Texas law for negligence per se.
No error has been shown in the district court’s grant of
summary judgment in favor of GMAC.
Conclusion
For the foregoing reasons, the judgment of the district
court is
AFFIRMED.