Opinion ID: 2569807
Heading Depth: 3
Heading Rank: 2

Heading: Does Equitable Estoppel Bar the State's Action Against Schnell's License?

Text: The state argues that the superior court erred in holding that the state was equitably estopped from suspending and conditioning Schnell's insurance license. Schnell argues that the following conduct of the state's agents estops the state from now acting against his license: (1) Walsh's rejection of the hearing officer's proposed decision; (2) Walsh's subsequent renewals of Schnell's license; (3) the three-year lag between the hearing and Burke's final decision; and (4) Walsh's statements to Schnell and his New York Life supervisor that led them to believe that the matter was concluded. Although we give no deference to the superior court's holding, Schnell urges us to affirm it based, among other things, on the superior court's estoppel theory. Whether equitable estoppel applies here is a question of law not involving agency expertise. [5] We therefore apply the substitution of judgment standard of review as to this issue. [6] Courts may apply the doctrine of equitable estoppel against the state, [7] even when the state acts as the sovereign. [8] We have rarely applied estoppel to bar the state's exercise of its sovereign police powers, reasoning that where a [government] acts for the good of its citizens rather than a narrow proprietary interest, estoppel would be unjust to the public. [9] But the public interest does not altogether bar the application of estoppel against the state when it acts as sovereign. [10] Rather, as we held in Municipality of Anchorage v. Schneider , the public interest is best protected through careful application of the estoppel test itself, which weighs the prejudice to the public interest in each case. [11] In Wassink v. Hawkins, [12] we reiterated the four-part test that applies when a litigant seeks to invoke estoppel as a defense against the government. [13] Applied here, this test would require Schnell to show that: (1) the division asserted a position by conduct or words; (2) Schnell acted in reasonable reliance on the division's assertion; (3) Schnell suffered resulting prejudice; and (4) estopping the division from acting against Schnell's license serves the interest of justice so as to limit public injury. [14] Arguing that the four necessary elements are absent here, the state first contends that the division did not assert a position by words or conduct. Schnell argues that Walsh's conduct was an assertion of a position for purposes of the estoppel test. That Mr. Walsh rejected the recommendations of the hearing officer, Mr. Flavin, failed to enter any order within the statutory time period, issued two unconditional license renewals, and indicated to [Schnell and Schnell's supervisor] that the matter was resolved, are all indicative that a director's decision had been made. But, for reasons we now discuss, these acts or omissions did not amount to an assertion of a position by the state. It is correct that Walsh rejected Flavin's proposed decision, but he was entitled to do so under AS 44.62.500(b) and (c). [15] The state correctly argues that when Walsh did so, he was not expressly or implicitly asserting a position that the matter was resolved without sanction. Alaska Statute 44.62.500 makes this point clear. That statute gave the division several options when it received the hearing officer's proposed decision. It could have (1) adopted the proposed decision in its entirety; (2) reduced the proposed penalty and adopted the balance of the proposed decision; or (3) rejected the proposed decision in its entirety. [16] If an agency chooses to reject a proposed decision, it may decide the case upon the record, ... or may refer the case to the same or another hearing officer to take additional evidence. [17] By not adopting Flavin's proposed decision, Walsh did not decide the case in Schnell's favor. Rather, he deferred reaching a decision. Walsh twice renewed Schnell's license after rejecting the proposed decision. Schnell asserts that these unconditional renewals signify that Walsh had, in fact, reached a final decision not to revoke or suspend Schnell's license. But the renewals bore no such explicit or implicit assertion. The relevant statute does not condition renewal on the absence of any pending division action against the license. [18] Because the statute does not deny the director discretion to renew pending an unresolved license proceeding, renewal is not an assertion that an unclosed proceeding would be abandoned. We also note that if renewal could be the basis for estoppel, it would put a great burden on the state's licensing agencies, predictably increasing both the cost of licensing and the risk that regulated professions pose to the public. Relying on AS 21.06.220(a), Schnell would next find an assertion in Walsh's failure to issue a decision within the thirty-day period specified in that statute, or in the asserted untimeliness of Burke's decision. [19] He cites Crum v. Stalnaker [20] for the proposition that an agency's silence can be relied upon to satisfy the first element of estoppel. Despite the statute's shall language, the state argues that the statutory time limit is directory and not mandatory. The state apparently means that the thirty-day limit defines a period within which the director should issue a decision, but does not bar the director from taking action even if it is not taken within thirty days. Preclusion would arguably follow if we construed the time period as mandatory. We have never before considered whether AS 21.06.220's thirty-day limit is directory or mandatory. [21] Another court, however, has held that the thirty-day provision in a nearly identical statute was directory and not mandatory. [22] In Commissioner of Insurance v. Stryker, [23] the Georgia Court of Appeals held that [i]n its ordinary significance, `shall' is a word of command; however, in the absence of injury to the defendant and in the absence of a penalty for failure to comply with the statute, `shall' denotes simple futurity rather than a command. [24] By that analysis, Schnell's argument that the thirty-day limit barred action against his license turns on whether the delay injured him and whether the statute imposes a penalty for lack of compliance. Schnell argues only that the division's three-year delay harmed him. The type of reliance and prejudice he alleges  time futilely spent building an insurance practice, lost alternative business opportunities, and lost deferred compensation  was potentially significant. But, like the statute in Stryker, AS 21.06.220 imposes no penalty or consequences for failing to rule timely. Schnell would read into AS 21.06.220 an absolute bar on state action taken after the thirty-day period expires, but it is unlikely that the legislature intended such an interpretation of AS 21.06.220. To read it that way could lead to absurd and undesirable results; failing to issue a decision within thirty days would forever insulate a license holder from justifiable action against his or her license. Nor do we agree with Schnell that failing to issue a decision within the period specified in subsection .220(a) must be deemed an assertion for equitable estoppel purposes. The failure to make an order on hearing within thirty days was not an assertion that Schnell's matter had been or would be favorably resolved. Silence is not sufficient to bar state action in this situation. Moreover, this was an administrative disciplinary proceeding in a heavily regulated profession. Even if the delay was unreasonable, it would be contrary to the public interest to remedy the agency's delay by allowing a violation to go undisciplined. As we held in In re Triem, [t]he public's faith in the system is harmed by lengthy adjudications of discipline matters, but dismissing the matter would simply exacerbate the injury to the public interest. [25] For similar reasons, we also reject Schnell's argument that Burke's final decision was statutorily untimely. We therefore conclude that any failure to adhere to the statute did not give rise to an assertion, for Wassink purposes, that Schnell would never be sanctioned. Finally, Schnell claims that Walsh's conversations with Schnell and Schnell's supervisor led them to believe that the matter was over and that the Director had decided to impose no sanctions. We first reject the state's argument that these statements are hearsay; they are admissions of a party-opponent  the state  and therefore admissible non-hearsay. [26] Nonetheless, these statements are not assertions for estoppel purposes. As we held in In re Stephenson, [27] it is well established that a state is not estopped to assert a result dictated by its rules, even if a state officer has made a contrary representation from the terms of the rules ... and caused reliance on such representation. [28] If Walsh's words were representations that the division would not sanction Schnell, they would be contrary representations from the terms of the rules. That is, Walsh could not issue a decision after rejecting Flavin's proposal without giving the parties the opportunity to present either oral or written argument before the agency. [29] Moreover, Walsh made his statements ex parte, during informal conversations with Schnell and his managing partner. Thus, whatever Walsh said, and however great Schnell's reliance thereon, his words did not estop the state from later rendering a decision in accordance with its rules. Because the first element necessary for equitable estoppel is absent, we need not consider the other three elements.