Rehearing and Rehearing En Banc Denied July 22, 1982.
CUDAHY, Circuit Judge.
The primary issue in this appeal is whether the doctrine of equitable estoppel may be invoked against the United States Postal Service on the basis of representations made by a postal employee to a potential "Express Mail" customer. The district court, on cross motions for summary judgment, held that estoppel was unavailable against the federal government as a matter of law, and granted summary judgment in favor of the Postal Service on that basis. We reverse and remand for further proceedings.
On January 15, 1980, plaintiff-appellant Michele Portmann, a free lance graphic arts designer, paid the United States Postal Service thirty-one dollars to transport three small packages containing color film separations, taken from photographs of the works of Salvador Dali, from Highland Park, Illinois, to New York City. Portmann alleges that at the time of the mailing, she stated to the Postal Service that her packages contained color separation film of great value, which could not easily be reproduced, and that safe insured carriage was therefore imperative. Portmann further alleges that the postal clerk on duty assured her that by paying $31 for "Express Mail" and special "Document Reconstruction Insurance," Portmann could guarantee that her packages would be "fully insured against loss up to $50,000." Verified Complaint at
Package # 3 was never delivered. Upon discovering the loss, Portmann promptly filed an application for indemnity with the Postal Service. In her application, Portmann claimed indemnity for the package in the amount of $3,874, a sum which she claimed represented the cost of reconstructing the lost film. The Postal Service reviewed Portmann's application and determined that the film was "merchandise" as distinguished from "nonnegotiable documents" under the applicable postal regulations, and that Postal Service liability was therefore limited to $500.
On October 10, 1980, Portmann filed a Motion for Summary Judgment in the district court, then verifying the contents of her complaint under oath. In her motion, Portmann argued first, that the film separations constituted "documents" rather than "merchandise" under a proper interpretation of the applicable postal regulations, and second that Portmann's reliance on the postal clerk's oral assurances that her packages would be insured up to $50,000 should preclude the government from now limiting coverage to $500, regardless of the actual provisions of the postal regulations. The Government responded with its own Motion for Summary Judgment on November 3, 1980, arguing that Portmann's film separations had been correctly characterized by the Postal Service as "merchandise" rather than nonnegotiable documents and that coverage was therefore limited to $500. In addition, although not expressly admitting the factual allegations upon which Portmann's estoppel claim was based, the Government argued that such allegations, even if true, would not entitle Portmann to relief since "`estoppel cannot be set up against the Government on the basis of an unauthorized representation of an officer or employee ....'" Defendant's Motion for Summary Judgment at 2, quoting Abbott v. Harris, 610 F.2d 563, 564 (8th Cir. 1979).
The district court found for the Government on both issues. First, it confirmed the Postal Service's determination that Portmann's film separations were merchandise, subject to an indemnity limit of $500, rather than nonnegotiable documents, eligible for "Document Reconstruction Insurance" of up to $50,000. Second, the district court determined, as a matter of law, that the Postal Service could not be bound by the erroneous representation of a postal employee. Noting that it was "not without appreciation of the fact that plaintiff may have relied, to her detriment, on the representations of a Postal Service employee," the district court concluded that
Dist.Ct.Op. at 4. This appeal followed.
At the outset, we reject Portmann's contention that the contents of package # 3 qualified as "nonnegotiable documents" within the meaning of the applicable Postal Service regulations. Section 294.21 of the Domestic Mail Manual provides that "nonnegotiable documents" sent by Express Mail "are insured against loss, damage, or delay while in transit," for up to $50,000 per mailing unit.
Portmann argues that her color separations should be treated as nonnegotiable documents because they are film and because they have no intrinsic value apart from their message-carrying capacity. This argument, however, misconstrues the import of the word "film" in Section 294.22. Film, in the context of the Domestic Mail Manual, refers only to the medium upon which a business record or other commercial data is carried. It does not purport to classify as nonnegotiable documents all photographic reproductions or transparencies. Plaintiff's film separations, although both "reproductive" and "information carrying," are not valuable solely as a means by which commercial information is carried. We thus agree with the district court's conclusion that "[p]laintiff's goods, while in film form and certainly valuable, do not fit within the limited definition given to nonnegotiable documents [in the Domestic Mail Manual]." Dist.Ct.Op. at 3.
We believe, however, that this conclusion involves a fairly technical question of regulatory interpretation, and that a layperson reading these regulations as they existed as of January, 1980, might reasonably conclude that film separations such as Ms. Portmann's were eligible for Document Reconstruction Insurance.
The doctrine of equitable estoppel precludes a litigant from asserting a claim or defense which might otherwise be available to him against another party who has detrimentally altered her position in reliance on the former's misrepresentation or failure to disclose some material fact. See 3 J. Pomeroy, Equity Jurisprudence § 804 at 189 (5th ed. 1941); Note, Equitable Estoppel of the Government, 47 Brooklyn L.Rev. 423, 424 (1981). In the United States, the traditional view has been that equitable estoppel will not lie against the
As the doctrine of sovereign immunity eroded, it became necessary to offer other justifications for the government's exemption from equitable estoppel. One such justification invoked a separation of powers rationale; proponents argued that permitting equitable estoppel against the government would, in effect, allow government employees to "legislate" by misinterpreting or ignoring an applicable statute or regulation. Judicial validation of such unauthorized "legislation," it was claimed, would infringe upon Congress' exclusive constitutional authority to make law.
In addition to invoking a separation of powers rationale, some courts and commentators have relied on public policy considerations to support the no-estoppel rule, drawing in particular on several early Supreme Court opinions in which the Court expressed concern that holding the government bound by the improper acts of its agents might promote fraud and collusion,
With the growth of the federal government and the broadening of government interaction with private parties, many courts have reconsidered their reluctance to apply the doctrine of equitable estoppel against the government.
Despite its practical appeal, an analysis focusing solely on a sovereign vs. proprietary distinction has several significant shortcomings. First, the line between sovereign and proprietary functions is somewhat artificial and difficult to apply.
The Supreme Court decision most often cited as authority for refusing to apply estoppel against the government, and relied on heavily by the district court in the instant case, is Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947). In Merrill, an agent of the Federal Crop Insurance Corp., a government corporation established by the Department of Agriculture, advised a farmer that the spring wheat the farmer intended to plant on winter wheat acreage was fully insurable against loss under the Federal Crop Insurance Act (FCIA). The agent's advice was incorrect, since a federal regulation specifically excluded from coverage spring wheat planted on winter wheat acreage. Relying on the agent's representation, however, the farmer completed an application and the corporation issued him an insurance policy. Several months later, the farmer lost his crop and sought to recover on his policy. His claim was denied on the ground that the FCIA regulations excluded the insurance of spring wheat replanted on winter wheat acreage. The farmer filed suit against the corporation, charging that he had relied to his detriment on the statements of the corporation's agent, and alleging that his insurance policy was therefore in effect. The Idaho Supreme Court ruled in favor of the farmer, finding that the corporation's function was comparable to that of a private insurance company, which would be bound under similar circumstances. On the theory that the Government was acting in a proprietary, not a sovereign, capacity, the state court estopped the corporation to deny the validity of the policy or the liability of the Government for plaintiff's loss.
The Supreme Court reversed in a 5-4 decision, implicitly rejecting the sovereign/proprietary distinction relied on by the Idaho court, together with that court's attempt to allow an estoppel claim against the government.
At least three significant differences distinguish the situation in Merrill from the facts of the instant case. First, at the time Merrill purchased his insurance, the federal government was apparently the only entity providing the type of all risk crop insurance authorized by the FCIA. See 332 U.S. at 383 n.1, 68 S.Ct. at 3 n.1. Thus, even if Merrill had been given accurate information,
In its more recent decisions, the Supreme Court has backed away from its suggestion in Merrill that equitable estoppel may never be asserted against the federal government. In Montana v. Kennedy, 366 U.S. 308, 81 S.Ct. 1336, 6 L.Ed.2d 313 (1961), the Court rejected an alien's attempt to resist deportation on equitable estoppel grounds, but remarked in dicta that the misconduct of which the petitioner complained was insufficient to estop the government.
Thus, although the Supreme Court has been extremely reluctant to estop the federal government, it has not entirely foreclosed the possibility of applying estoppel in an appropriate case. Indeed, in its most recent decision on the subject, the Supreme Court expressly stated that "[t]his Court has never decided what type of conduct by a government employee will estop the government from insisting on compliance with valid regulations governing the distribution of welfare benefits." Schweiker v. Hansen, 450 U.S. 785, 788, 101 S.Ct. 1468, 1470, 67 L.Ed.2d 685 (1981). Moreover, in refusing to apply estoppel against the Social Security Administration in Schweiker, the Supreme Court carefully distinguished the Social Security issue before it in that case from several other situations, not involving government entitlement programs, in which lower federal courts had applied estoppel against the government.
In sum, we find nothing in any of the Supreme Court's estoppel decisions which clearly forecloses the availability of estoppel in the instant case. Nor do we believe that this court's decision in Gressley v. Califano, 609 F.2d 1265 (7th Cir. 1979), disposes of Portmann's estoppel argument. Gressley, like Schweiker, was a government benefits case, in which a claimant argued that erroneous information supplied by a Social Security representative should estop the government from denying disability benefits to someone not statutorily entitled to receive such benefits. In the instant case, unlike Gressley, we are not dealing primarily with a statutory benefit but more directly with a written contract between the Postal Service and a private citizen. Under the terms of this contract, the Service agreed, for a valuable consideration, to promptly deliver Portmann's separation negatives to a specified location, or to reimburse Portmann if her articles were lost. In reliance on the postal clerk's assurance that this contract included the purchase of Document Reconstruction Insurance, Portmann agreed to do business with the Postal Service to the exclusion of other express carriers who would have insured her separation negatives for their full value. As a direct result of the government's misrepresentation, therefore, Portmann was barred not from receiving a statutory benefit available only from the government (as in Gressley and Schweiker), but from collecting the actual damages she incurred as a result of the Postal Service's non-delivery, and from contracting with a private entity which would have reimbursed her for this loss. Cf. Federal Crop Insurance Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947).
Our conclusion that equitable estoppel may be available against the government in the instant case is supported by numerous decisions of this and other courts of appeal. As early as 1966, this court, in United States v. Fox Lake State Bank, 366 F.2d 962 (7th Cir. 1966), held the federal government estopped to bring an action under the Civil False Claims Act against a bank that had relied heavily on the advice of federal agents in preparing the disputed claims applications. The Fox Lake court held that although "the doctrine of estoppel must be applied with great caution to the government and its officials ... in proper circumstances the doctrine does apply." 366 F.2d at 965. Contemporaneous decisions in the Third and District of Columbia Circuits reached similar holdings. Thus, in Semaan v. Mumford, 335 F.2d 704 (D.C. Cir. 1964), the District of Columbia Circuit held that plaintiff's pleadings and affidavits were sufficient to raise a factual issue as to whether the Library of Congress, by engaging in a course of conduct which had led plaintiff to believe he had been elevated to permanent employee status, was estopped to deny plaintiff the procedural rights of a permanent employee upon discharge. Similarly, in Walsonavich v. United States, 335 F.2d 96, 101 (3rd Cir. 1964), the Third Circuit applied estoppel against the government in a federal tax case, ruling that although estoppel is rarely invoked against the federal government, "there are circumstances where the Government should be required by our law to stand behind [its] written agreements ... in order to prevent manifest injustice." See also United States v. Gross, 451 F.2d 1355, 1358 (7th Cir. 1971) (suggesting that the government may be estopped where "the facts upon which the private party relied to his detriment were addressed or communicated directly to him by a government official"); Manloading & Management Assoc., Inc. v. United States, 461 F.2d 1299 (Ct.Cl.1972) (where agency representative, at bidding conference, had advised prospective contractor that his contract would definitely be renewed for the next fiscal year, government was estopped from reprocuring the contract, in accordance
More recently, in Mendoza-Hernandez v. Immigration & Naturalization Service, 664 F.2d 635 (7th Cir. 1981), this court declined, on the facts before it, to apply equitable estoppel against the Immigration and Naturalization Service (INS) but stated that "affirmative misconduct" which actually prejudiced an alien would estop the government from denying the alien the relief he requested. 664 F.2d at 639. In addition, cases in the Second, Third and Ninth Circuits have squarely held that affirmative misconduct on the part of the INS will estop the government from insisting on compliance with otherwise valid immigration regulations. See Corniel Rodriquez v. Immigration & Naturalization Service, 532 F.2d 301 (2d Cir. 1976) (failure of American consul to warn prospective alien that she would forfeit special immigration status if she married before being admitted to the United States estopped INS from later deporting alien, who had married her childhood sweetheart three days before leaving Dominican Republic); Villena v. INS, 622 F.2d 1352 (9th Cir. 1980) (where INS did not respond to alien's petition for preference classification for almost four years with no apparent justification for the delay, INS was estopped from claiming that the alien had failed to adequately pursue his preference claim); Yang v. Immigration & Naturalization Service, 574 F.2d 171 (3d Cir. 1978) (proof of affirmative misconduct on part of INS would entitle petitioner to relief, on equitable estoppel grounds, from deportation proceedings). See also Santiago v. Immigration & Naturalization Service, 526 F.2d 488 (9th Cir. 1975) (estoppel available in the citizenship and immigration context where there has been affirmative misconduct on the part of the government).
A series of cases in the Ninth Circuit also illustrates the increased judicial willingness to entertain estoppel claims against the federal government. In United States v. Georgia-Pacific, 421 F.2d 92 (9th Cir. 1970), the Ninth Circuit estopped the federal government from enforcing a contract involving the transfer of title to certain forest lands against a defendant who had invested a considerable sum of money in the property, in reliance upon a government land order later declared invalid by the Executive Branch. The court in Georgia-Pacific suggested that the federal government could be estopped where (1) the government is acting in a proprietary capacity; and (2) the government agent whose advice has been relied upon acted within the scope of his authority. 421 F.2d at 100-01. Shortly thereafter, in Brandt v. Hickel, 427 F.2d 53 (9th Cir. 1970), the Ninth Circuit applied estoppel against the federal government even though the representation relied upon was conceded to be unauthorized. In Brandt, plaintiff-appellant had submitted a noncompetitive oil and gas lease bid to a regional Land Management office. The bid was rejected because of a technical error, but the regional Land Manager allowed Brandt 30 days to resubmit her offer, without loss of priority. On the basis of this representation, Brandt opted to forego an appeal of the rejection and, instead, filed an amended offer within the 30 day period. Subsequently, the Secretary of the Interior ruled that the Land Manager's action was unauthorized and without effect, and that by failing to appeal the rejection of her bid, Brandt had forfeited the right to assert the validity of her original offer.
427 F.2d at 56.
Twelve years later, in United States v. Lazy FC Ranch, 481 F.2d 985 (9th Cir. 1973), the Ninth Circuit again applied estoppel against the federal government, this time to bar it from maintaining an action to recover excess payments made to several business partners under the Federal Soil Bank Program. The court in Lazy FC Ranch held that estoppel should be available even where the government is acting in a sovereign capacity "if the government's wrongful conduct threatens to work a serious injustice and if the public's interest would not be unduly damaged by the imposition of estoppel." 481 F.2d at 989. Similarly, in California Pacific Bank v. Small Business Administration, 557 F.2d 218 (9th Cir. 1977), the Ninth Circuit, citing both Lazy FC Ranch and § 320 of the Restatement (Second) of Contracts, held that where a private party seeks to estop the government from disavowing an arrangement it had previously condoned or entered into, estoppel should be available "where justice and fair play require it," i.e. where the government's change in position threatens a serious injustice, and the interests of the public will not be unduly jeopardized by the estoppel claim. 557 F.2d at 224. See also Investors Research Corp. v. Securities and Exchange Com., 628 F.2d 168, 174 n.34 (D.C. Cir.), cert. denied, 449 U.S. 919, 101 S.Ct. 317, 66 L.Ed.2d 146 (1980), ("The fundamental principle of equitable estoppel applies to government agencies as well as private parties."). Cf. United States v. Lucienne D'hotelle de Benitez Rexach, 558 F.2d 37, 43 (1st Cir. 1977) ("Although estoppel is rarely a proper defense against the government, there are instances where it would be unconscionable to allow the government to reverse an earlier position.")
Recently, in TRW, Inc. v. Federal Trade Com., 647 F.2d 942 (9th Cir. 1981), the Ninth Circuit reaffirmed its prior decisions holding that equitable estoppel could be applied against the government "in proper circumstances," United States v. Fox Lake State Bank, 366 F.2d 962, 965 (7th Cir. 1966), and set forth five requirements for determining when such circumstances exist:
647 F.2d at 950-51 (citations omitted). In addition, the Ninth Circuit noted that "the government action upon which estoppel is to be based, must amount to affirmative misconduct," which that court defined as "something more than mere negligence." 647 F.2d at 951. Accord United States v. Ruby Co., 588 F.2d 697, 703-04 (9th Cir. 1978), cert. denied, 442 U.S. 917, 99 S.Ct. 2838, 61 L.Ed.2d 284 (1979). We believe that these factors accurately reflect the central equitable considerations relevant to determining the availability of estoppel against the government in any particular case. They should thus form the basis of the district court's inquiry on remand in the instant case. We further believe that other factors identified in this court's prior estoppel decisions, including the type of government activity being pursued, the reasonableness of plaintiff's reliance, and the potential danger, posed by estoppel, of undermining important federal interests or risking a severe depletion of the public fisc, may appropriately be weighed in the equitable balance. See e.g., Strauch v. United States, 637 F.2d 477, 482 (7th Cir. 1980); Champaign County v. United States Law Enforcement Assistance Administration, 611 F.2d 1200, 1205 n.8 (7th Cir. 1979); Gressley v. Califano, 609 F.2d 1265, 1267-68 (7th Cir. 1979).
Our decision that equitable estoppel may be available against the government in the
In light of these considerations, virtually all courts that have considered the question have concluded that the Postal Service is not immune, as is the federal government generally, from commercial or judicial garnishment proceedings. See, e.g., Standard Oil Div., American Oil Co. v. Starks, 528 F.2d 201 (7th Cir. 1975); Beneficial Finance Co. v. Dallas, 571 F.2d 125 (2d Cir. 1978); May Dept. Stores Co. v. Williamson, 549 F.2d 1147 (8th Cir. 1977).
528 F.2d at 204. See also Beneficial Finance Co. v. Dallas, 571 F.2d 125, 128 (2nd Cir. 1978) (Postal Service possesses many powers equivalent to a private business enterprise, and competes with private carriers in the delivery of non-letter mail).
We believe that such considerations also argue in favor of permitting estoppel against the Postal Service in the instant situation. In transporting Ms. Portmann's separation negatives, the Service was not
In addition, we think we would do the Postal Service no competitive favor by conferring on it an absolute immunity from estoppel in the circumstances of this case. As we have suggested, no threat to the public fisc is directly involved. But the dubious privilege of not being bound by the representations of its employees in routine commercial transactions would seem to further reflect on the Service's already tarnished reputation as a provider of regular and express mail service. Certainly, to emphasize the Postal Service's position as merely one of several competitors for express business is to put this case in its own realistic context, quite distinct, for example, from that of the Social Security Administration in Schweiker v. Hansen.
In sum, we hold that the district court erred in concluding, as a matter of law, that equitable estoppel could not lie against the United States Postal Service in the instant situation. We therefore reverse the district court's grant of summary judgment in favor of the government, and remand for a determination whether the factors set out in Part V of this opinion warrant the application of estoppel to the facts of this case.
Reversed And Remanded.
According to the Postal Bulletin, these changes were issued "to clarify insurance coverage and improve customer understanding and administration of insurance claims." See Government's Brief at 6 n.5.
2 K. Davis, supra note 6, § 17.01 at 492 (quoting Hart v. United States, 95 U.S. 316, 318, 24 L.Ed. 479 (1877)).
K. Davis, Administrative Law of the Seventies, § 1701 at 399 (1976).
332 U.S. at 383, 68 S.Ct. at 3 (footnote omitted).
332 U.S. at 387-88, 68 S.Ct. at 5.
In rejecting petitioner's estoppel claim, the Supreme Court noted that as of 1906, the United States did not require a passport for a citizen to return to this country, and that petitioner had presented no evidence that Italian authorities imposed such a requirement on Americans desiring to leave Italy at that time. In light of these circumstances, the Court held that the Consul's erroneous advice "falls far short of misconduct such as might prevent the United States from relying on petitioner's foreign birth." 366 U.S. at 314-15, 81 S.Ct. at 1341.