Federal Deposit Ins. Corp. v. Harrison

• Decision Date: 29 June 1984
• Docket Number: No. 83-7123,83-7123
• Citation: 735 F.2d 408
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff-Appellant, v. Jack H. HARRISON and Frederick G. Rixey, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 408

735 F.2d 408

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, Plaintiff-Appellant, v. Jack H. HARRISON and Frederick G. Rixey, Defendants-Appellees.

No. 83-7123.

United States Court of Appeals Eleventh Circuit.

June 29, 1984.

John F. Kizer, Jr., Birmingham, Ala., for plaintiff-appellant.

R.A. Ferguson, Jr., Leach, Hampe, Dillard & Ferguson, Ann Z. Arnold, Birmingham, Ala., for defendants-appellees.

Appeal from the United States District Court for the Northern District of Alabama.

Before KRAVITCH, JOHNSON and HATCHETT, Circuit Judges.

KRAVITCH, Circuit Judge:

In this debt collection action appellant Federal Deposit Insurance Corporation ("FDIC") filed suit against appellees Jack H. Harrison and Frederick G. Rixey as guarantors of a promissory note made by one Henry B. Bell. ¹ FDIC, as receiver of Southern National Bank, purchased the note and guaranty agreements from the bank after it was declared insolvent on June 14, 1979.

In 1977 Bell, Harrison and Rixey formed Real Estate Marketing Corporation. Southern National Bank agreed to loan the corporation slightly more than $30,000.00 on the condition that the men would sign limited guaranty agreements covering the debt. In March 1978, primarily to lower their individual income tax liabilities, the three incorporators divided the corporation's 1977 note into three parts, with each person becoming primarily liable on one of the three notes and signing a limited guaranty agreement on the notes of the other two. The guaranty agreements here at issue provided that Harrison and Rixey would pay all the debts of Bell up to $11,277.50. The notes and guaranty agreements were renewed in March 1979.

When Southern National Bank was declared insolvent in June 1979, FDIC was appointed receiver of the bank. Pursuant to 12 U.S.C. Sec. 1823(e), it then purchased certain assets of the bank, including several promissory notes executed by Bell and the two notes executed by Harrison and Rixey. In October 1979, FDIC made a demand on Bell, Harrison and Rixey for payment of the three notes that were renewed in March 1979. After receiving his demand notice, Rixey contacted FDIC to determine the full extent of his liability. He testified, and the district court agreed, that an FDIC agent assured him that Harrison and Bell were paying off their loans and that he need pay only the amount stated on his own note. Rixey paid off his note shortly thereafter.

Harrison also contacted FDIC when he received his demand notice. He spoke to a liquidator named Marcia Carrigan, who was responsible for marshaling the assets of Southern National Bank, and was told by her that Rixey and Bell were paying their notes. Harrison testified, and the district court found, that when he asked Carrigan for the total amount of his liability, she informed him that he need pay only his own note and that he would not be held liable on his guaranty. The next day Harrison sent FDIC the following letter confirming his conversation:

Dear Ms. Carrigan:

I am enclosing herewith my check in the amount of $11,919.53 which is tendered to you with the assurances and understanding that Mr. Bell and Mr. Rixey are simultaneously and also paying their notes in full and that this releases me from any further obligation to Southern National Bank on any notes, guarantees, or any other loan executed by Messrs. Bell, Rixey and Real Estate Marketing Corporation.

Please acknowledge receipt of this check by returning to me the original of any notes or documents reflecting any claim against me by Southern National Bank.

Very truly yours,

HARRISON, JACKSON & LEE

Jack H. Harrison Harrison's check was marked "payment in full" and was cashed without protest.

In April 1981, approximately eighteen months later, FDIC sent demand letters to Harrison and Rixey to enforce their guaranty contracts against part of Bell's outstanding debt to FDIC. Unknown to Harrison and Rixey, Bell had not paid off his note but had entered into a special agreement with FDIC whereby he was to pay his 1979 note and other obligations in quarterly installments. According to an affidavit of an FDIC liquidator, Bell paid nearly $29,000.00 pursuant to the arrangement before he defaulted.

FDIC filed suit against Bell, Harrison and Rixey in July 1981, alleging that Bell had failed to pay all that was due on two notes and that Harrison and Rixey were liable as guarantors of Bell's debt up to $11,277.50. The court entered a default judgment against Bell in the amount of $50,236.96. It concluded, however, that FDIC was equitably estopped from asserting its claim against Harrison and Rixey as guarantors of Bell. ² We affirm.

The doctrine of equitable estoppel precludes a litigant from asserting a claim or defense that might otherwise be available to him against another party who has detrimentally altered his position in reliance on the former's misrepresentation or failure to disclose some material fact. See Portmann v. United States, 674 F.2d 1155, 1158 (7th Cir.1982); 3 J. Pomeroy, Equity Jurisprudence Sec. 804 at 189 (5th ed. 1941). Federal law on the question whether a government agency may be estopped has been unevenly shifting over the decades. See K. Davis, Administrative Law Treatise Sec. 17.03 at 252 (Supp.1982). Courts have been reluctant to estop the government when it acts in its sovereign capacity or when its agents act beyond the scope of statutory or regulatory authority. In cases involving denial of citizenship, for example, the Supreme Court has declined to decide whether even "affirmative misconduct" would estop the Immigration and Naturalization Service from denying citizenship. ³ See INS v. Miranda, 459 U.S. 14, 103 S.Ct. 281, 74 L.Ed.2d 12 (1982) (per curiam); INS v. Hibi, 414 U.S. 5, 94 S.Ct. 19, 38 L.Ed.2d 7 (1973) (per curiam). This circuit also has declined to decide whether affirmative misconduct will estop the government when acting in its sovereign capacity. Deltona Corporation v. Alexander, 682 F.2d 888 (11th Cir.1982).

The Supreme Court decision most often cited as authority for refusing to apply estoppel against the government is Federal Crop Insurance Corporation v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947). In Merrill, an agent of the Federal Crop Insurance Corporation, 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. The agent's advice was incorrect, since a federal regulation specifically excluded from coverage spring wheat planted on winter wheat acreage. When the farmer's crop was destroyed and his insurance claim denied, he filed suit against the Corporation, charging that he had relied to his detriment on the statements of the Corporation's agent. The Supreme Court refused to accept the farmer's estoppel argument, observing that only Congress had the authority to deplete the public treasury and that persons who deal with the government are charged with knowledge of federal statutes as well as the regulations promulgated under them.

Despite the reluctance of the Supreme Court to estop the government when it has performed a sovereign function, the circuit courts generally have held that the federal government may be estopped when it serves an essentially proprietary role and its agents act within the scope of their delegated authority. See Deltona Corporation v. Alexander, 682 F.2d 888 (11th Cir.1982); Molton, Allen and Williams, Inc. v. Harris, 613 F.2d 1176 (D.C.Cir.1980); United States v. Florida, 482 F.2d 205 (5th Cir.1973); United States v. Georgia-Pacific Co., 421 F.2d 92 (9th Cir.1970). Although the proprietary/sovereign distinction has been criticized as somewhat artificial and difficult to apply, see Portmann, 674 F.2d at 1161; Georgia-Pacific, 421 F.2d at 101, this circuit consistently has adhered to this approach, see Buccaneer Point Estates, Inc. v. United States, 729 F.2d 1297, 1299 n. 2 (11th Cir. 1984); Deltona, 682 F.2d at 891; United States v. Florida, 482 F.2d at 209. ⁴

Activities undertaken by the government primarily for the commercial benefit of the government or an individual agency are subject to estoppel while actions involving the exercise of exclusively governmental or sovereign powers are not. Characteristic "sovereign" activities include interpretation of tax statutes, see Automobile Club of Michigan v. Commissioner, 353 U.S. 180, 77 S.Ct. 707, 709, 1 L.Ed.2d 746 (1957); enforcement of health and safety regulations, see Pacific Shrimp Co. v. United States Department of Transportation, 375 F.Supp. 1036, 1042 (W.D.Wash.1974); actions affecting federal property and Indian lands, see New Mexico v. Aamodt, 537 F.2d 1102, 1110 (10th Cir.1976), cert. denied, 429 U.S. 1121, 97 S.Ct. 1157, 51 L.Ed.2d 572 (1977); United States v. Florida, 482 F.2d 205 (5th Cir.1973); authorization of funds for public utilities, see Somerville Technical Services v. United States, 640 F.2d 1276, 226 Ct.Cl. 291 (1981); grants of disability benefits, see Gressley v. Califano, 609 F.2d 1265 (7th Cir.1979); awards of student loans, see Hicks v. Harris, 606 F.2d 65 (5th Cir.1979); denials of United States citizenship, see INS v. Miranda, 459 U.S. 14, 103 S.Ct. 281, 74 L.Ed.2d 12 (1982) (per curiam); and the issuance of permits for developers' dredge and fill activities, see Deltona Corporation v. Alexander, 682 F.2d 888 (11th Cir.1982).

Proprietary governmental functions include essentially commercial transactions involving the purchase or sale of goods and services and other activities for the commercial benefit of a particular government agency. Whereas in its sovereign role, the government carries out unique governmental functions for the benefit of the whole public, in its proprietary capacity the government's activities are analogous to those of a private concern. See Portmann v. United States, 674 F.2d 1155 (7th Cir.1982) (customer may...