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Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

---

LAWRENCE 

v. 

LOUIS 0. 

Federal 

j, II 

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

L .. PENNY, ) 

) 

Plaintiff-Appellee/ ) 

Cross-Appellant, ) 

) 

) 

) 

GIUFFRIDA, Director ) 

Emergency Management Agency ) 

) 

Defendant-Appellant/ ) 

Cross-Appellee. } 

} 

~ll.~ED 

U·L"lHc-i sc~r~~ (i)Uft of Appeals 

Tenth C!r-:uit 

MAR 12 1990 

ROBERT L. HOECKER 

Clerk 

Nos. 87-1767 

87-2622 

Appeal from the United States District Court 

for the Western District of Oklahoma 

(D.C. No. C-84-479-T) 

David A. Poarch (Robert L. Pendarvis with him on the briefs}, of 

Luttrell, Pendarvis, Rawlinson & Poarch, Norman, Oklahoma, for 

Plaintiff-Appellee/Cross-Appellant. 

Jay S. Bybee, Attorney, Appellate Staff, Civil Division, United 

States Department of Justice, Washington, D.C. (John R. Bolton, 

Assistant Attorney General, Washington, D.C., Richard K. Willard, 

Assistant Attorney General, Washington, D.C., Williams. Price, 

United States Attorney, Oklahoma City, Oklahoma, and John F. 

Cordes, Attorney, Appellate Staff, Civil Division, United States 

Department of Justice, Washington, D.C., with him on the briefs}, 

for Defendant-Appellant/Cross-Appellee. 

Appellate Case: 87-2622 Document: 01019956080 Date Filed: 03/12/1990 Page: 1 
II II 

Be.fore BALDOCK, McWILLIAMS and EBEL, Circuit Judges. 

EBEL, Circuit Judgeo 

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This is an appeal from a judgment of the United States 

District Court for the Western District of Oklahoma against Louis 

Giuffrida, Director of the Federal Emergency Management Agency 

("FEMA"), and in favor of plaintiff-appellee Lawrence Penny, for 

$35,000. On appeal, FEMA argues that the district court 

incorrectly held that FEMA was est~pped from denying liability, 

that the district court erred in awarding Penny recovery on 

inconsistent theories, and that the district court's award of 

interest was improper. In a related appeal, Penny argues that the 

district court erred in denying attorney's fees. For the reasons 

presented in this opinion, we hold that it was error to find FEMA 

liable under an estoppel theory, and we therefore reverse the 

district court's judgment in that regard. We find no error, 

however, in the district court's refusal to award attorney's fees 

to Penny, and we therefore affirm that decision. 

Facts 

In December 1977, Lawrence Penny applied for a Home Loan 

Guaranty with the Vete-ran's Administration ("VA") on a home in the 

Norman, Oklahoma area. Using a VA form, Penny's mortgage company 

submitted to the VA a Request for Determination of Reasonable 

Value, which included a metes-and-bounds description of the tract 

and listed the property address as a rural route number. The VA 

subsequently issued a Certificate of Reasonable Value, which 

included the following condition: "Flood insurance required in 

accordance with VA Reg. 4326." 

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Soon- thereafter, Kenneth Bridges, an--insurance agent employed 

by Farmers Insurance Company and authorized to write insurance 

under the National Flood Insurance Program ("NFIP"), informed 

Penny that he would need flood insurance in order to qualify for 

the VA-guarant~ed loan. At Penny's request, Bridges subsequently 

prepared a flood insurance policy application for Penny for 

$35,000 of coverage. On the application, Bridges described the 

house as being in Cleveland County~ Oklahoma, and added a 

parenthetical that stated: "(inside city limits of Norman)." In 

fact, Penny's home was located in Cleveland County, but outside 

the city limits of Norman. It is undisputed that while Norman, 

Oklahoma, qualified for the NFIP, the area of Cleveland County 

located outside Norman's city limits did not. 

Bridges submitted the application to the St. Paul pi ·· · and 

Marine Insurance Company, which, as servicing agent for the NFIP, 

approved the application on December 30, 1977. Penny paid his 

first annual premium of $88.00, and FEMA issued him a flood 

insurance policy. Penny continued to pay his annual premiums for 

the years 1978 through 1982. 

On May 18, 1982, Penny's home was flooded. When Penny 

reported the loss, an agent from the General Adjustment Bureau 

surveyed the property and estimated Penny's losses at $35,124.05. 

In July 1982, the NFIP administrator denied Penny's claim on the 

ground that Penny's home was not located in a community 

participating in the NFIP, and, consequently, Penny was not 

eligible for NFIP coverage. In August 1982, FEMA cancelled 

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Penny's insurance effective March 20, 19B2, and returned his last 

premium. 

In 1984, Penny brought suit against Bridges, Farmers 

Insurance Company, and FEMA. In his complaint, Penny alleged that 

Bridges and Farmers Insurance Company were liable in tort for 

their negligence in issuing the flood insurance policy. He 

further alleged that FEMA was liable in contract and was equitably 

estopped from denying liability under the policy. Bridges and 

Farmers filed a cross-claim against FEMA for indemnification. 

On Penny's negligence claim against Bridges and Farmers, the 

jury found for Penny in the amount of $40,000e 1 The estoppel 

claim against FEMA was tried simultaneously to the court, and it 

held that FEMA was equitably estopped from denying liability to 

Penny under the policy and that FEMA was jointly and severally 

liable with Bridges and Farmers to the extent of the $35,000 

policy limit. 2 The district court awarded Penny prejudgment 

interest and costs against FEMA but denied him attorney's fees 

because it found that FEMA's position had been "substantially 

justified." FEMA appeals from the judgment against it, and Penny 

appeals from the denial of attorney's fees. 

1 Penny's judgment against Bridges and Farmers Insurance 

Company was not restricted to the $35,000 policy limit because the 

action sounded in tort, not contract. 

2 The district court also-denied the cross-claims of Bridges 

and Farmers against FEMA. 

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I II 

·Issues 'On-Appeal 

FEMA raises three arguments on appeal: (1} the district court 

incorrectly held that FEMA was estopped from denying liability 

under the policy; (2) the district court erred by awarding Penny 

recovery on inconsistent theories; and (3} the district court's 

award of interest was imprope~ because Congress has not authorized 

interest awards against the United States under the NFIP. Penny 

appeals on the ground that the district court erred in denying 

attorney's fees. Because we reverse the district court's 

conclusion that the. government was estopped from denying liability 

under the policy, we need not address the other issues raised by 

FEMA. 

Discussion 

The district court ~eld that the--traditional elements of 

estoppel were present in this case and that FEMA engaged in 

"affirmative misconduct" so as to warrant a finding that FEMA was 

estopped from denying coverage under the policy. We disagree. 

Historically, equitable estoppel has been used to prevent a 

party from taking a legal position inconsistent with an earlier 

statement or action that places his adversary at a disadvantage. 

See w. Keeton, D. Dobbs, R. Keeton & D. Owen, Prosser and Keeton 

on the Law of Torts S 105, at 733 (5th ed. 1984). The purpose of 

the doctrine of equitable estoppel is to ensure that no one will 

be permitted to "take advantage of his own wrong." R. H. Stearns 

Co. v. United States, 291 u.s. 54, 62 (1934). In private suits, 

the traditional elements of equitable estoppel are: (1) the party 

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I• II 

to be estopped··'·must know ··the facts; ( 2) ·the party to be estopped 

must intend that his conduct will be acted upon or must so act 

that the party asserting the estoppel has the right to believe 

that it was so intended; (3) the party asserting the estoppel must 

be ignorant of the true facts; and (4) the party asserting the 

estoppel must rely on the other party's conduct to his injury. 

Che-Li Shen v. INS, 749 F.2d 1469, 1473 (lOth Cir. 1984). 

The law of estoppel against the government is considerably 

less clear. Of course, the government is ordinarily bound by the 

authorized acts of its agents under traditional concepts of agency 

or contract law. See, ~' Santobello v. New York, 404 u.s. 257, 

262 (1971) (Court refused to permit one prosecutor to assume a 

legal position contrary to the legal position stated in a plea 

bargain negotiated by the original prosecutor); Hollerbach v. 

United States, 233 U.S. 165, 172 (1914) (Court refused to permit 

the government to assert a position contrary to an affirmative 

representation that it had made in a contract for the repair of a 

dam). The difficulty comes when one seeks to hold the government 

responsible for the unauthorized acts of its agents under estoppel 

concepts. Traditionally, the Supreme Court has held that 

unauthorized acts of the government agents cannot be the basis for 

estoppel. See, ~' United States v. Stewart, 3.11 u.s. 60, 70 

(1940); Utah Power & Light Co. v. United States, 243 u.s. 389, 409 

(1917). However, recent Supreme Court decisions have at least 

suggested the possibility that unauthorized official conduct may 

give rise to an estoppel against the government where the litigant 

makes out the-requisites of private ·estoppel and addi~ionally 

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·shows the existence of "affirmative misconduct." Nevertheless, no 

·Supreme Court case has ever actually applied estoppel against the 

government for the unauthorized acts of its agents, and a 1984 

Supreme Court case has made it clear that the Court still has not 

resolved whether estoppel may ever be applied against the 

government. Heckler v. Community Health Services of Crawford 

County, Inc., 467 U.S. 51, 60 & n.l2 (1984).3 

Modern estoppel cases begin with Federal Crop Ins. Corp. v. 

Merrill, 332 u.s. 380 (1947), the leading case expressing the 

traditional limitations of equitable estoppel against the 

government. In Merrill, two farmers relied on a government 

agent's promise that their entire wheat crop would be federally 

insured by the Federal Crop Insurance Corporation ("FCIC"). 

Unknown to the farmers or the agent, regulations promulgated by 

the FCIC prohibited insurance on a certain portion of their crop. 

When drought destroyed the crop, the FCIC denied the farmers' 

claim for insurance on the basis of the new regulationsc The 

Supreme Court, while acknowledging that the requirements for 

private estoppel were satisfied, held that the farmers were 

presumed to know the content of the FCIC regulations regardless of 

the "hardship resulting from innocent ignorance." Id. at 385. In 

addition, the Court said that estoppel against the government 

would violate "the duty of all courts to observe the conditions 

defined by Congress for charging the public treasury." Id. 

3 For an excellent discussion of the law of estoppel against the 

government, see Comment, Unauthorized Conduct of Government 

Agents: A Restrictive Rule of Equitable. Estoppel Against the 

Government, 53 u. Chi. L. Rev. 1026 (1986). 

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II II 

In Montana v. Kennedy, 366 u.s. 308 (1961), the Court refused 

to apply estoppel against the government, but the analysis-·-±n -that 

case suggested that there might be circumstances under which an 

estoppel argument might succeed against the government. In 

Montana, the plaintiff argued for estoppel because a government 

official had given erroneous information that prevented the 

plaintiff's American mother from entering the United-States just 

before the plaintiff's birth. The Court declined to estop the 

government from denying the plaintiff citizenship because the 

official's veil-intentioned but mistaken advice fell "far short of 

misconduct such as might prevent the United States from relying on 

petitioner's foreign birth." Id. at 314-15. 

In its next estoppel case, INS v. Hibi, 414 u.s. 5 (1973) 

(per curiam}, the Supreme Court similarly refused to find estoppel 

against the government while acknowledging that Montana left open 

the possibility of estoppel in a situation with sufficiently 

egregious affirmative misconduct. In Hibi, a foreign national 

sought to estop the government from asserting against.him a 

statutory deadline for applying for citizenship because the 

government did not inform him of his right to apply for 

citizenship nor did it provide the congressionally-mandated 

procedures to assist him in making timely application for 

citizenship. The Court held that the government could not be 

estopped because failure to publicize rights or station 

naturalization officials in a foreign country did not amount to 

"affirmative misconduct." Id. at 8-9. 

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. -

II II 

In ·Schweiker v. Hansen, 450 u.s.- 785 (1·981) (per curiam), the 

plaintiff sought advice from a government agent who mistakenly 

believed that the plaintiff was ineligible for Social Security 

benefits and advised her not to apply. When the plaintiff later 

realized that she was eligible and tried to obtain benefits, she 

was denied relief because she had not complied with the 

regulations. Although the Court expressed sympathy for the 

plaintiff, it refused to estop the government because the 

plaintiff had failed to establish the requisite "affirmative 

misconduct." Id. at 788-90. In the course of conducting its 

analysis, however, the Court cautioned that it had never decided 

whether affirmative misconduct could estop the government, nor did 

it need to so decide in that case because no affirmative 

misconduct was present there. As in Merrill, the Court again 

expressed concerns for the public fisc. Id. at 789 n.4. 

The next Supreme Court case to discuss governmental estoppel 

was INS v. Miranda, 459 U.S. 14 (1982) (per curiam). There, the 

claimant sought to assert estoppel against the government because 

of the government's lengthy delay in processing a permanent 

residency petition. The Court held that mere delay did not 

constitute "affirmative misconduct." Id. at 19. It also advised 

that the Court's disinclination in Schweiker to apply estoppel 

against the government should not be limited to situations 

involving the public fisc. The Court indicated it was also wary 

of applying estoppel in other situations involving "matters of 

broad public concern." Id • 

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II II 

The· Court's most ·recent estoppel case is Heckler v. Community 

Health Services of Crawford County, Inc., 467 U.S. 51. (1984). In 

Heckler, Community Health Services of Crawford County, Inc. 

("CHS") participated in the Medicare and Comprehensive Employment 

Training Act ("CETA") programs. CHS received double reimbursement 

for some specific operating expenses be~ause of the overlap 

between the two programs. Government regulations prevented such 

double recovery, although CHS acted in good faith in seeking such 

reimbursement upon mistaken advice that it had received from a 

government agent. When the Health and Human Services Department 

later tried to recover the funds, CHS sought to estop the 

government from enforcing its regulations. The Supreme Court, in 

a unanimous decision, repeated its reasoning in Merrill that 

citizens are presumed to know the law and may not rely on 

government agents' incorrect interpretations of the law. Id. at 

63 & n.l7. Once again, the Court avoided the necessity of ruling 

on whether the government might ever be estopped because there the 

traditional elements of estoppel were missing. Id. at 60-61. 

Although the Supreme Court consistently has reversed lower 

court decisions granting estoppel, it has continued to leave open 

the possibility that equitable estoppel against the government 

might apply in some cases. In light of the aforementioned 

precedent, however, we do not find that the facts in the case 

before us would satisfy the criteria for equitable estoppel 

against the government even if the Supreme Court ultimately 

decides that such a doctrine is viable. Specifically, we do not 

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believe that--FEMA·' s ·actions rose "t'O the level of affirmative 

misconduct. 

Penny argues that the government's actions constituting 

affirmative misconduct were: (1) the VA's requirement that Penny 

obtain flood insurance in order to qualify for a home loan; (2) 

FEMA's acceptance of Penny's premiums from 1977-1982; (3) FEMA's 

denial of liability when Penny's home was flooded; and (4) FEMA's 

retroactive cancellation of Penny's policy as of March 20, 1982, 

and FEMA's tender of only his last premium. 

We do not accept Penny's argument that the government, 

through the VA, required him to obtain flood insurance through 

FEMA. The Flood Disaster Protection Act of ~973 requires the 

purchase of flood insurance as a condition to receiving federal or 

federally-related financial assistance for the construction or 

acquisition ~f insurable buildings "within an identified special 

flood, mudslide (i.e., mudflow), or flood-related erosion hazard 

area that is located within any community participating in the 

Program." 44 C.F.R. 59.2(a) (emphasis added). Because the Penny 

property was outside of the city limits, the VA did not have the 

authority to require Penny to obtain insurance. Therefore, Penny 

cannot be heard to say that he relied on the VA's written 

requirement of insurance, because he is "expected to know the law 

and may not rely on the conduct of Government agents contrary to 

law." Heckler v. Community Health Services of Crawford County, 

Inc., 467 U.S. at 63. 

Nor do we accept Penny's assertion that FEMA knew that 

Penny's property-was ineligible for flood ·insurance when it took 

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·' 

If' 

I II 

Penny's premiums. Until the time of·Penny's claim, FEMA was 

unaware that Penny's house was not in the city limits of Norman, 

and therefore that FEMA was prohibited by statute from insuring 

it, because FEMA, like Penny, relied on Bridge's written 

description in Penny's insurance application placing Penny's house 

"inside [the] city limits of Norman." In this regard, the facts 

are analogous to those in Schweiker v. Hansen, 450 U.S. 785 (1981) 

(per curiam), where the field agent, presumably knowledgeable in 

the law, mistakenly believed that the plaintiff was ineligible for 

Social Security benefits. Similarly, in our case, the law was not 

in dispute, but FEMA mistakenly believed that the factual 

circumstances made Penny eligible for insurance. The Supreme 

Court has indicated that mere negligence on the part of a 

government agent does not reach the level of affirmative 

misconduct. See Heckler v. Community Health Services of Crawford 

County, Inc., 467 u.s. at 64 ("The fact that [the government 

agent's] advice was erroneous is, in itself, insufficient to raise 

an estoppel •.. "); INS v. Miranda, 459 U.S. at 18 ("Even if the 

INS arguably was negligent ..• , its conduct was not 

significantly different from that in Montana and Hibi .••• 

[N]either the Government's conduct nor the harm to the respondent 

is sufficient to estop the Government ••. "); Schweiker v. 

Hansen, 450 U.S. at 788-89 (government field agent's negligence 

and failure to follow governmental regulations did not justify 

abnegating the "'duty of all courts to observe the conditions 

defined by Congress for charging the public treasury'" (quoting 

Federal ,Crop Ias .•.. Corp. v. Merrill, 332 U.S. a.t 385)); Montana v. 

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I II 

Kennedy, 366 U.S. at 314-15 (official's well-meant but erroneous 

advice could not sustain estoppel against the government)o 

FEMA was acting pursuant to its statutory authority in 

denying liability to Penny, and it would have acted beyond its 

authority to extend insurance to Penny. Penny offers no authority 

to suggest that an agency's conformance with a congressional 

enactment establishes affirmative misconduct. 

Finally, although we do not approve of FEMA's tender of only 

the last premium paid, that action occurred after any possible 

reliance by Penny and is not relevant to an estoppel analysis. 

The government's actions in this case were less egregious 

than governmental misconduct that the Supreme Court has found not 

to constitute affirmative misconduct. We hold, therefore, that 

the district court was incorrect in concluding that the 

affirmative misconduct requirement has been met. Because· we 

conclude that there was no showing of affirmative misconduct, we 

need not consider the other issues raised by FEMA in its appeal. 

With regard to Penny's appeal of the district court's order 

denying attorney's fees we find no error in the district court's 

ruling that FEMA's position was "substantially justified," and 

therefore we conclude that there was no abuse of discretion in the 

district court's refusal to award Penny attorney's fees. 

Accordingly, we REVERSE the judgment against FEMA, and we 

AFFIRM the order of the district court refusing to award Penny 

attorney's fees. 

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