Wells Fargo Bank, N.A. v. Fonder
2015 SD 66
S.D.2015Background
- Matthew and Caralynn Fonder bought a riverside home and obtained a mortgage from Wells Fargo Bank; Wells Fargo retained Wells Fargo Insurance, Inc. Flood Services (WFFS) to perform a flood-hazard determination required by the NFIA.
- WFFS determined the property was not in a Special Flood Hazard Area (SFHA); the Bank did not require flood insurance and the Fonders did not buy it.
- Shortly after moving in, the Missouri River flooded and destroyed the home; subsequent determinations by Factual Data Flood and FEMA found the property was in a SFHA.
- The Bank initiated foreclosure; by stipulation the Fonders sued WFFS (third-party defendant) asserting professional negligence, breach of fiduciary duty, and negligent infliction of emotional distress; they later sought to add negligent misrepresentation.
- The circuit court dismissed the Fonders’ claims under SDCL 15-6-12(b)(5), relying on Highmark Federal Credit Union v. Hunter; the Fonders appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether NFIA precludes state common-law claims against flood-determination companies | Fonders: NFIA does not bar state common-law liability for an independent determiner whose erroneous report foreseeably injures borrowers | WFFS: NFIA (and related federal policy) precludes or limits state tort liability tied to federally mandated flood determinations | Court: NFIA does not implicitly immunize flood-determination companies from state common-law claims; Highmark (which involved a lender) is distinguishable |
| Sufficiency of professional‑negligence claim | Fonders: Complaint alleges foreseeable reliance and professional negligence sufficient under notice pleading | WFFS: No duty existed to the Fonders; claims are derivative of NFIA duties and thus fail | Court: Reverse dismissal — professional‑negligence claim may proceed; remand for merits |
| Breach of fiduciary duty claim | Fonders: WFFS owed fiduciary duties when making the determination | WFFS: No fiduciary relationship existed with the borrowers; services were for the lender | Court: Affirm dismissal — plaintiffs failed to plead a fiduciary relationship |
| Negligent infliction of emotional distress and motion to amend to add negligent misrepresentation | Fonders: Complaint alleges emotional harm and proposed facts for negligent misrepresentation | WFFS: No duty; amendment inappropriate | Court: Reverse dismissal as to negligent infliction of emotional distress; reverse denial of leave to amend — Fonders may add negligent misrepresentation on remand |
Key Cases Cited
- Highmark Federal Credit Union v. Hunter, 814 N.W.2d 413 (S.D. 2012) (NFIA duties do not create a private federal cause of action against lenders; used by trial court but distinguished here)
- Paul v. Landsafe Flood Determination, Inc., 550 F.3d 511 (5th Cir. 2008) (federal NFIA limits do not necessarily preclude state tort claims against flood determiners)
- Klecan v. Countrywide Home Loans, Inc., 951 N.E.2d 1212 (Ill. App. Ct. 2011) (NFIA does not immunize flood-determination companies from borrower suits)
- Williams v. Standard Fire Ins. Co., 892 F. Supp. 2d 608 (M.D. Pa. 2012) (permitting state-law claims against independent flood-determination provider)
- Mid‑W. Elec., Inc. v. DeWild Grant Reckert & Assocs. Co., 500 N.W.2d 250 (S.D. 1993) (South Dakota recognizes economic‑loss recovery for professional negligence beyond privity)