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Wells Fargo Bank, N.A. v. Fonder

Supreme Court of South Dakota

July 29, 2015

WELLS FARGO BANK, N.A., Plaintiff,
v.
MATTHEW R. FONDER, CARALYNN C. FONDER, and any person in possession, Defendants, Third-Party Plaintiffs and Appellants,
v.
WELLS FARGO INSURANCE, INC. FLOOD SERVICES, Third-Party Defendant and Appellee

Argued: January 14, 2015.

Page 410

APPEAL FROM THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT STANLEY COUNTY, SOUTH DAKOTA. THE HONORABLE JOHN L. BROWN Judge.

Affirmed.

PATRICK J. GLOVER of Meierhenry Sargent LLP, Sioux Falls, South Dakota, Attorneys for defendants, third-party plaintiffs and appellants.

LAUREN P. MCKENNA of Fox Rothschild LLP, Philadelphia, Pennsylvania and MARGO D. NORTHRUP of Riter, Rogers, Wattier & Northrup, LLP, Pierre, South Dakota, Attorneys for third-party defendant and appellee.

KERN, Justice. GILBERTSON, Chief Justice, and SEVERSON and WILBUR, Justices, and KONENKAMP, Retired Justice, concur. KONENKAMP, Retired Justice, sitting for ZINTER, Justice, disqualified.

OPINION

Page 411

KERN, Justice

[¶1] Matthew and Caralynn Fonder appeal the circuit court's dismissal of their third-party claim against Wells Fargo Insurance, Inc. Flood Services (WFFS). The circuit court dismissed the claim pursuant to SDCL 15-6-12(b)(5) for failure to state a claim upon which relief can be granted. We affirm in part, reverse in part, and remand.

Facts and Procedural History

[¶2] On May 12, 2011, the Fonders purchased a home north of Fort Pierre in Stanley County, South Dakota, situated near the Missouri River. The Fonders obtained a mortgage from Wells Fargo Bank, N.A. (the Bank). Prior to financing and in accordance with the National Flood Insurance Act (NFIA), the Bank selected WFFS to conduct a flood hazard determination on the Fonders' home at the Fonders' expense. WFFS determined the home was not in a Special Flood Hazard Area (SFHA).[1] Because of WFFS's determination, the Bank did not require the Fonders to obtain flood insurance, the Fonders did not purchase flood insurance, and the Bank did not obtain flood insurance at the Fonders' expense.

[¶3] On or about June 1, 2011, only a few weeks after the Fonders moved into their home, the Missouri River flooded, forcing the Fonders to evacuate. Over the next several months, the home's main level filled with three to five feet of standing water, rendering the home uninhabitable. The flood destroyed the Fonders' home. The Fonders' insurance company retained Factual Data Flood to conduct a flood determination on the Fonders' property on July 8, 2011. Factual Data Flood determined that the home was in fact located in a SFHA. The Fonders also had the Federal Emergency Management Agency (FEMA) perform a flood determination, and FEMA also determined the Fonders' home was in a SFHA.

[¶4] On February 3, 2012, the Bank filed a complaint to foreclose on the Fonders' home. Through that foreclosure action and by stipulation of the parties, the Fonders initiated suit against WFFS on May 20, 2013, seeking to recover damages sustained as a result of their reliance on WFFS's erroneous flood determination. The Fonders asserted claims of negligence, breach of fiduciary duty, and negligent infliction of emotional distress. WFFS answered and moved the circuit court to dismiss the cross-claim pursuant to SDCL 15-6-12(b)(5) for failure to state a claim upon which relief can be granted. On October 30, 2013, the Fonders moved the court to amend their third-party complaint to assert a claim of negligent misrepresentation. The circuit court held a hearing on the motions on December 11, 2013. The court granted WFFS's motion to dismiss, relying on Highmark Federal Credit Union v. Hunter, 2012 S.D. 37, 814 N.W.2d 413. The court also dismissed the Fonders' motion to amend their cross-claim because it determined WFFS did not owe the Fonders a duty. The Fonders appeal.

[¶5] The Fonders raise two issues in this appeal:

1. Whether the circuit court erred in dismissing the Fonders' claim pursuant ...

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