Petition — Walters v. Home Savings & Loan Ass'n of Lawton

wik te.

Office-Supreme Court, U.S.

FILED

1§ 1983

RL STEVAS,

SPA |

83-277

N

o.

In the Supreme Gourt of the Unite

OCTOBER TERM, 1983

HARRY N. WALTERS, ADMINISTRATOR OF

VETERANS’ AFFAIRS, PETITIONER

v.

HoME SAVINGS AND LOAN ASSOCIATION

OF LAWTON, OKLAHOMA

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Rex E. LEE

Solicitor General

J. PAUL MCGRATH

Assistant Attorney General

ENNETH S. GELLER

Deputy Solicitor General

CAROLYN F. CoRWIN

Assistant to the Solicitor General

WILLIAM KANTER

RICHARD A. OLD®®M“AN

BRUCE G. FORREST

Attorneys

Department of Justice FS

Washington, D.C. 20530 len

(202) 633-2217 ie

QUESTION PRESENTED

Whether the Administrator of Veterans’ Affairs

may be equitably estopped from relying on a valid

reguiation providing that forgery is a defense to lia-

bility on a home loan guaranty.

(1)

TABLE OF CONTENTS

Page

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ST En a snconamdanscetdonicneibaibins 1

Nee ci aclebesdenenpuniampeenaieeanaas 2

ae ee a mn obadaonenednsinabh 2

Reasons for granting the petition 0.0.2.0... 10

SNE RE SS EL a A 21

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Se snicanseonabosebtnneniinnnchebnnnale 27a

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ial a a sasnnseesncasdadenerbecsonssounnth 38a

IS a sa ceriaasseeenamivelaionpeiene 39a

he Dy ae Oe eee eee ee 42a

TABLE OF AUTHORITIES

Cases:

Armstrong v. United States, 516 F. Supp. 1252...... 10

Automobile Club v. Commissioner, 353 U.S. 180...... 11

Century Federal Savings & Loan Ass’n v. Roude-

Re ae Ce oe 18

Community Health Services Vv. Califano, 698 F.2d

615, cert. pending, No. 88-56 (filed July 14,

Tet ARI See CE aaa Ces AF a oe 10

Dizon vy. United States, 381 U.S. 68 -0.00..00...000000000... 11-12

FCIC Vv. Merrill, 882 U.S. 880 ................cccccceeeeee 8, 10-11, 14

Hart v. United States, 95 U.S. 816 ........0000...00..ee ee 11

> I, I os censepesinnmaloconse 10, 11

INS v. Miranda, No. 82-29 (Nov. 8, 1982)........... 10, 11, 15

Lee Vv. Munroe & Thornton, 11 U.S. (7 Cranch)

Ree ERR co SR RY LS Ta 11

McDonald v. Schweiker, 587 F. Supp. 47 ................ 10

Meister Bros. Vv. Macy, 674 F.2d 1174 .........000...0...... 10

Montana v. Kennedy, 366 U.S. 808 .......0....0...000000.... 10, 11

(m1)

Cases—Continued: Page

Mt. Vernon Cooperative Bank v, Gleason, 367 F.2d

TIP sidstsie->senssieahaossasieinss ab eivcieinselanh dinisdecaesbniapetedtaiicashiaiaiadan 18

Pine River Logging Co. v. United States, 186 U.S.

Ie ES TTC PSR ae, MR ea 11

Portmann v. United States, 674 F.2d 1155 .............. 10

Regan Vv. Taxation With Representation, No. 81-

aa coats nh spheidinmenpeninciniions 14

Schweiker v. Hansen, 450 U.S. 785 .............0........ 10, 11, 16

Snyder V. Bucks, $40 U.S. 165 ......ccccccscccsssessvcvcsceossoveses 11

Sutton v. United States, 256 U.S. 576 .........00..0000.... 11

United States v. Caseres, 440 U.S. 741 -..................- 16

United States v. San Francisco, 310 U.S. 16 ............ 11

United States v. Shimer, 367 U.S. 874 ..........000000....-. 8,7, 14

United States v. Stewart, 311 U.S. 60.0000... 11

United States v. Testan, 424 U.S. 392 ....000...00000000.. 11

Utah Vv. United States, 284 U.S. 584 000.000... 11

Utah Power & Light Co. v. United States, 243 U.S.

RAS PSR oh Tk ROSA Dey APR 11

Wilber National Bank y. United States, 294 U.S.

SO gcse cates lista ans 0.52: /stedeiaisebaasaabacgehiiethdeemataaeis 11

Woodstock/Kenosha Health Center v. Schweiker,

Nos. 82-2375 and 82-2485 (7th Cir. July 19,

BN ki ins dist eared nib sireinenstsiesiasdotaielaiiabanieahdainians 17

Statutes and regulations:

Servicemen’s Readjustment Act of 1944, ch. 268,

Oe i eo, 12

Veterans’ Benefits Act, Pub. L. No. 85-857, 72

Stat. 1105, 38 U.S.C. (& Supp. V) 101 et seq. .... 18

$8 U.S.C. (Supp. V) 2]0(c) (1) .......0.0000..... 2,3, 12

88 U.S.C. (& Supp. V a I ss 2

88 U.S.C. (& Supp. V) 1808(a) (1) .............. 2,4

pp A RU ae Re RR ae 4

RD a a ides 8,12

Ch. 588, 59 Stat. 628, 626 (1945) ........0.0... eee 12

88 C.F.R.:

ST pe 8,4

Vv

Statutes and regulations—Continued: Page

I IN io ccscanecnnntebieninaaiatiins 4

SN TROND cpiiveitdncicccicncsnicncchetimonitiietenionan 7

FES eee Ce 2, 3, 12, 18

21 Fed. Reg. 3119, ZIZS (1946) ...........0.cccccccceccccecesens 12

Miscellaneous:

H.R. Conf. Rep. No, 1449, 79th Cong., 1st Sess.

I | na halal alse a nlisd omsna bina bons 12

S. Rep. No. 1701, 80th Cong., 2d Sess. (1948) ........ 13

Veterans’ Administration, Department of Veterans

Benefits Manual M26-4 (Jan. 20, 1975) .............. 16

Iu the Supreme Court of the United States

OCTOBER TERM, 1983

No.

HARRY N. WALTERS, ADMINISTRATOR OF

VETERANS’ AFFAIRS, PETITIONER

Vv.

HOME SAVINGS AND LOAN ASSOCIATION

OF LAWTON, OKLAHOMA

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

The Solicitor General, on behalf of the Administra-

tor of Veterans’ Affairs, petitions for a writ of certi-

orari to review the judgment of the United States

Court of Appeals for the Tenth Circuit in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. A, infra,

la-26a) is reported at 695 F.2d 1251. The opinion

of the district court (App. C, infra, 30a-37a) is not

reported. The order of the district courts filed Au-

gust 29, 1979, denying cross-motions for summary

judgment (App. E, infra, 39a-4la) is not reported.

JURISDICTION

The judgment of the court of appeals (App. F,

infra, 42a) was entered on December 21, 1982. A

timely petition for rehearing was denied on April 21,

(1)

2

1983 (App. B, infra, 27a-29a). On July 15, 1983,

Justice White extended the time for filing a petition

for a writ of certiorari to and including August 19,

1983. The jurisdiction of this Court is invoked under

28 U.S.C. 1254(1).

REGULATION INVOLVED

38 C.F.R. 36.43825(a) provides:

Subject to the incontestable provisions of 38

U.S.C. 1821 as to loans guaranteed or insured on

or subsequent to July 1, 1948, there shall be no

liability on account of a guaranty or insurance,

or any certificate or other evidence thereof, with

respect to a transaction in which a signature to

*~ the note, the mortgage, or any other loan papers,

or the application for guaranty or insurance is a

forgery; or in which the certificate of discharge

or the certificate of eligibility is counterfeited,

or falsified, or is not issued by ithe Government.

STATEMENT

1. The Veterans’ Benefits Act, 38 U.S.C. (& Supp.

V) 1801 et seg., establishes a program under which

the Veterans’ Administration (‘V.A’) guarantees

loans made to veterans to assist them in securing resi-

dential housing. Under the program the VA may

guarantee up to 60% of the amount of a loan te be

applied to the purchase or construction of a resi-

dence. 38 U.S.C. (& Supp. V) 1808(a)(1). In the

event the veteran defaults on the loan, the VA gen-

erally must pay the amount owing under the terms of

the guaranty. However, Congress has authorized the

Administrator of Veterans’ Affairs (‘Administra-

tor’) to establish defenses to liability through prom-

ulgation of regulations. See 38 U.S.C. (Supp. V)

3

210(¢) (1) and 1821.’ Pursuant to this delegation of

authority, the Administrator has promulgated 38

C.F.R. 36.4825 (a), which provides in part that “there

shall be no liability on account of a guaranty * * *

with respect to a transaction in which a signature to

the note, the mortgage, or any other loan papers, or

the application for guaranty or insurance is a for-

gery eee»

When the Administrator receives notice of a fore-

closure sale, he may specify in advance of the sale

the minimum amount that will be credited to the in-

debtedness of the b:rrower. 38 C.F.R. 36.4820(a);

United States v. Shimer, 367 U.S. 3874, 379-380

(1961). The holder of the mortgage note may then

bid the specified amount for the property at the

foreclosure sale. If that bid is successful, the holder

of the note may elect within 15 days of the sale to

convey the property to the VA. 38 C.F.R. 36.4320

(a) (1). Once the property is transferred, the VA

*38 U.S.C. (Supp. V) 210(c) (1) provides that “[t]he Ad-

ministrator has authority to make all rules and regulations

which are necessary or appropriate to carry out the laws ad-

ministered by the Veterans’ Administration and are consistent

therewith * * *.” 38 U.S.C. 1821 provides:

Any evidence of guaranty or insurance issued by the

Administrator shall be conclusive evidence of the eligibil-

ity of the loan for guaranty or insurance under the pro-

visions of this chapter and of the amount of such guar-

anty or insurance. Nothing in this section shall preclude

the Administrator from establishing, as against the origi-

nal lender, defenses based on fraud or material misrep-

resentation. The Administrator shall not, by reason of

anything contained in this section, be barred from estab-

lishing, by regulations in force at the,date of such issu-

ance or disbursement, whichever is the earlier, partial

defenses to the amount payable on the guaranty or

insurance.

4

will pay the holder the amount previously specified

by the Administrator. 38 C.F.R. 36.4820(g).

2. On April 7, 1971, the Oklahoma Mortgage Com-

pany loaned $34,000 to Percy Durham, a veteran,

and his wife, Zelma Durham. The VA guaranteed

the mortgage pursuant to 38 U.S.C. (& Supp. V)

1803(a)(1) and 1810(c). Several weeks later Okla-

homa Mortgage assigned the note, mortgage, and loan

guaranty certificate to respondent Home Savings and

Loan Association of Lawton, Oklahoma. However,

Oklahoma Mortgage continued as service agent for re-

spondent in connection with the mortgage. App. A,

infra, 2a; App. C, infra, 31a.

Within a few years the Durhams defaulted on their

mortgage payments, and on July 12, 1974, respond-

ent began foreclosure proceedings. A foreciosure

judgment was entered in Oklahoma state court on

December 6, 1974. On January 28, 1975, there was

a foreclosure sale of the property, at which respond-

ent bid $30,000—the amount the VA had specified pur-

suant to 38 C.F.R. 36.4320(a)(1). Respondent then

elected to convey the property to the VA pursuant to

38 C.F.R. 36.4320(g). On February 24, 1975, a sher-

iff’s deed to the property was recorded in the name of

the Administrator, and on April 4, 1975, the VA paid

respondent $30,000. After making repairs, the VA

on April 16, 1975, conveyed the property to third

parties for the price of $31,000. App. A, infra, 2a;

App. C, infra, 32a-33a.

Meanwhile, on approximately February 24, 1975

(the day the sheriff’s deed to the property was re-

corded in the name of the Administrator), Oklahoma

Mortgage informed the VA that it had received in-

formation that the signatures of Zelma Durham on

the note and mortgage might be forgeries. The VA

5

began ar: investigation, but did not inform respondent

of the allegation of forgery. App. A, infra, 2a-3a;

App. C, infra, 32a-33a.

On October 16, 1975, the VA paid respondent

$6,733.19 pursuant to the guaranty, based on respond-

ent’s claim for losses incurred in connection with the

default.* Around this time, the VA investigation

confirmed that Mrs. Durham’s signatures on the note

and mortgage were in fact forgeries. On October 28,

1975, the VA asked respondent to return the $6,733.19

payment, and respondent complied by sending a check

for that amount to the VA. The VA then requested

that respondent remit an additional $1,055.46 plus in-

terest, representing losses (including sales expenses)

the VA had incurred in selling the property to third

parties. Respondent refused to pay the additional

amount, and the VA subsequently recovered the sum

through an offset against other VA funds due to re-

spondent. App. A, infra, 2a-3a; App. C, infra, 38a-

34a.

8. Respondent brought this suit against the Ad-

ministrator, Oklahoma Mortgage Company (the origi-

nal lender and subsequently the service agent), and

the American First Title and Trust Company (the

company that had issued a title insurance policy to

Oklahoma Mortgage that apparently covered loss from

forgery).* Respondent sought primarily to enforce

*? The payment may have been made to respondent because of

a breakdown in communication between the section of the

VA that is responsible for investigation of forgeries and the

section responsible for payment of claims. June 11, 1980,

Tr. 72.

* Respondent originally filed its suit in Oklahoma state

court in 1976, naming only American First Title and Trust

and Oklahoma Mortgage as defendants. In 1978, respondent

6

the alleged liability of the VA on the loan guaranty

certificate. In August 1979, the United States Dis-

trict Court for the Western District of Oklahoma

(Eubanks, J.) denied cross-motions for summary

judgment, stating, inter alia, that “|t]he court does

not believe that the [VA’s forgery] defense is barred

by any estoppel theory” (App. E, infra, 41a). On

June 11, 1980, the district court (West, J.) held a

hearing, at which Mrs. Durham testified that her sig-

natures had been forged. However, respondent again

contended that the VA should be estopped from rais-

ing forgery as a defense to its liability on the guar-

anty, on the ground that the agency knew about the

possibility of forgery when it accepted conveyance of

the property and resold it. App. C, infra, 30a, 34a-

35a.

The district court held that the VA was estopped

from asserting forgery as a defense to liability on

the guaranty (App. C, infra, 30a-37a). The court

announced that the government could be estopped

when necessary to prevent injustice to private par-

ties who had relied to their detriment on a govern-

ment agent’s statements or conduct, so long as there

was no impairment of “the public’s interests” (id. at

35a). The court found the elements of estoppel to

be “clearly satisfied,” observing that the VA had pur-

chased and sold the property without notifying re-

spondent of the alleged forgery and, _y conveying

the property to third parties, “effectively precluded

[respondent] from making itself whole by retaining

the property and possibly reselling at a higher price”

(id. at 36a). The court concluded that the public pol-

added the Administrator as a defendant. The Administrator

then removed the action to the United States District Court

for the Western District of Oklahoma. App. C, infra, 34a.

7

icy of the United States would not be frustrated by

directing the VA to honor the guaranty, since the VA

had an “independent right of indemnity” under the

statute (id. at 36a-37a).* The court entered judgment

for respondent against the Administrator in the

amount of $7,838.13, the total of the two sums the

VA had recovered from respondent. The judgment

recited that no liability was found concerning Ameri-

can First Title and Trust Company and Oklahoma

Mortgage Company. App. D, infra, 38a.

4, A divided panel of the court of appeals affirmed

(App. A, infra, la-26a). The court of appeals recog-

nized that this Court has declined on numerous occa-

sions to apply the doctrine of equitable estoppel to

prevent the government from enforcing statutes or

regulations. However, the court of appeals purported

to distinguish those decisions on various grounds,

concluding that none of them “present[s] facts hav-

ing any similarity to those here” (id. at 3a). The

court characterized the VA’s acceptance of the sher-

iff’s deed and its subsequent payment of $30,000 to

respondent as “affirmative actions” on which re-

spondent was “entitled to rely” (id. at 7a). In the

court’s view, respondent was entitled to treat the

transaction as an accomplished fact, and when the

VA verified months later that the signatures were

forged, “it was too late to unravel the yarn” (ibid.).

Like the district court, the court of appeals con-

cluded that estoppel would not harm the fiscal poli-

* The district court appears to have been referring to the

possibility that the VA could recover its loss on the guaranty

+ from the veteran who had obtained the loan. See 38 C.F.R.

86.4323 (e) ; United States v. Shimer, supra, 367 U.S. at 386-

888.

8

cies of the United States, since the VA had recourse

against the borrowing veteran (ibid.).°

The court of appeals rejected the government’s con-

tention that respondent could not have relied on the

VA’s failure to disclose the possibility of forgery.

The court characterized as “speculative” respondent’s

claim that it could have sold the property at a profit

if it had retained it (App. A, infra, 7a). However,

the court concluded that the VA’s affirmative acts

from the time of the foreclosure suit until after the

guaranty payment “led [respondent] to rely on its

compliance with VA regulations” and “were incon-

sistent with denial of the validity of the original loan

transaction” (id. at 8a).

Judge McKay dissented (App. A, infra. 9a-26a).

He concluded that the majority’s attempts to distin-

guish past decisions of this Court declining to estop

the government “will prove to be chimerical rather

than precedential and will introduce new contradic-

tions into an already confused area of law” (id. at

9a). Judge McKay disputed what he perceived as the

majority’s attempt to distinguish respondent’s claim

on the ground that it involved a “commercial transac-

tion” (id. at 14a-16a). He found that the VA loan

guaranty program was more in the nature of a sub-

sidy than a commercial! transaction and that in any

event this Court in FCIC v. Merrill, 332 U.S. 380

* The court of appeals erroneously stated (App. A, infra,

6a) that the parties agreed that the district court had correctly

articulated the test for estoppel. The government’s supple-

mental brief in the court of appeals made clear that it is the

government’s position that principles of equitable estoppel .

have no application to the United States and that the district

court erred in applying to the government the test for estoppel

that is applicable to private parties.

9

(1947), had rejected the view that the government

has the status only of a private litigant when it en-

gages in commercial activities.

In Judge McKay’s view, respondent had not estab-

lished even the preliminary elements of estoppel (in-

cluding those elements that would be necessary to

estop a private party), since it had not shown the

existence of misleading conduct that induced reason-

able detrimental reliance (see App. A, infra, 17a-

18a). Judge McKay was unable to identify any

legally imposed duty, or even a good faith obligation,

that would require the VA to notify loan guaranty

holders when the agency receives an allegation of for-

gery (id. at 24a). Even assuming there were such a

duty of disclosure, Judge McKay determined that the

VA’s silence here could not have been misleading,

since respondent apparently had elected to convey the

property before the agency received the forgery alle-

gation (id. at 24a-25a). Because he concluded that

the VA had not engaged in misleading conduct, Judge

McKay found it unnecessary to reach the questions

whether respondent’s reliance was reasonable, whether

it resulted in any detriment, and whether there were

other considerations suggesting that the court should

withhold the exercise of its equitable powers (id. at

26a).°

The court of appeals denied the Administrator’s

petition for rehearing with sugges«iwn for rehearing

en banc, Judges McKay, Logan, arid Seymour dissent-

ing (App. B, infra, 27a-29a).

* Judge McKay noted, however, that he agreed with the

majority that respondent’s claim of detriment was speculative,

since respondent had introduced no evidence that it could have

sold the property for more than it received from tne VA

(App. A, infra, 26a n.21).

10

REASONS FOR GRANTING THE PETITION

Despite this Court’s recent decisions reaffirming

the principle that the government may rarely, if ever,

be equitably estopped from enforcing a valid statute

or regulation, the lower courts continue to disregard

that principle and to distinguish the Court’s decisions

on any available ground.’ Here the court of appeals

concluded that this Court’s decisions did not govern,

simply because the facts of this case differ from those

presented by previous estoppel cases. It went on to

hold that the Administrator of Veterans’ Affairs is

estopped from asserting a longstanding statutorily

authorized defense to liability on a home loan guar-

anty under circumstances that would not even war-

rant estoppel of a private party.

The court of appeals’ ruling cannot be reconciled

with the unbroken line of this Court’s decisions estab-

lishing that the government may not be estopped, at

least in the abserve of serious affirmative misconduct.

See, e.g., INS v. Miranda, No. 82-29 (Nov. 8, 1982);

Schweiker v. Hansen, 450 U.S. 785 (1981); INS v.

Hibi, 414 U.S. 5, 8 (1973) ; Montana v. Kennedy, 366

U.S. 308, 314-315 (1961); FCIC v. Merrill, 332 U.S.

380 (1947). In particular, the decision conflicts with

this Court’s repeated instruction to the lower courts

not to use estoppel as a means of circumventing statu-

torily authorized restrictions on payments from the

federal treasury. See Schweiker v. Hansen, swpra,

450 U.S. at 788, quoting FCIC v. Merrill, supra, 332

T See, e.y., Community Health Services v. Califano, 698 F.2d

615 (3d Cir. 1983), petition for cert. pending, No. 83-56 (filed

July 14, 1983); Portmann v. United States, 674 F.2d 1155 (7th

Cir. 1982); Meister Bros. v. Macy, 674 F.2d 1174 (7th Cir.

1982); McDonald v. Schweiker, 587 F. Supp. 47 (N.D. Ind,

1981); Armstrong v. United States, 516 F. Supp. 1252 (D. Colo.

1981).

ll

U.S. at 385. For this reason, and because the decision

of the court of appeals threatens the sound adminis-

tration of the VA home loan guaranty program, as

well as other federal programs, by preventing recov-

ery of substantia] sums of money owed to the govern-

ment, review by this Court is warranted.

1. a. This Court has repeatedly and consistently

held that the government may not be equitably

estopped from enforcing the laws, even though pri-

vate parties may, as a result, suffer hardship in par-

ticular cases. See, e.g., Lee v. Munroe & Thornton, 11

U.S. (7 Cranch) 366, 369-370 (1813); Hart v.

United States, 95 U.S. 316, 318-319 (1877); Pine

River Logging Co. v. United States, 186 U.S. 279,

291 (1902); Utah Power & Light Co. v. United

States, 243 U.S. 389, 408-409 (1917); Sutton v.

United States, 256 U.S. 575, 579 (1921); Utah v.

United States, 284 U.S. 534, 545-546 (1932); Wilber

National Bank v. United States, 294 U.S. 120, 123-

124 (1935); United Stai‘es v. Stewart, 311 U.S. 60,

70 (1940); FCIC v. Merrill, supra, 332 U.S. at 384;

Automobile Club v. Conmvmissioner, 353 U.S. 180, 183

(1957) ; Montana v. Kennedy, supra, 366 U.S. at 314-

315; INS v. Hibi, supra, 414 U.S. at 8; Schweiker v.

Hansen, supra; INS v. Miranda, supra. Indeed, we

know of no decision of this Court holding that estoppel

lies against the government in any circumstance.’

This rule is founded on the doctrines of sovereign

immunity and separation of powers. See, e.g., United

States v. Testan, 424 U.S, 392, 399 (1976); Dixon v.

*In several cases the Court has declined to determine

whether the government may be estopped in instances involv-

ing serious affirmative misconduct. See, e.g., INS v. Miranda,

supra, slip op. 8; Schweiker v. Hansen, supra, 450 U.S. at 788.

However, the Court has never identified a case in which the

facts established such misconduct,

12

United States, 381 U.S. 68, 73 (1965); Snyder v.

Buck, 340 U.S. 15, 19 (1950); United States v. San

Francisco, 310 U.S. 16, 29-32 (1940). The actions of

government employees cannot alter the terms and

conditions for tle payment of money from the federal

treasury that are established by statute or regulation.

By the same token, if the judiciary were free to im-

pose otherwise unauthorized liability on the govern-

ment based simply on its notions of equity, the gov-

ernment would be virtually powerless to control and

protect the public fisc.

Congress has expressly authorized the Adminis-

trator to promulgate regulations establishing de-

fenses to liability on a guaranty. 38 U.S.C. (Supp. V)

210(c)(1) and 1821. The regulation providing that

the VA shall not be liable on a guaranty if a signa-

ture on loan papers is a forgery, 38 C.F.R. 36.4325 (a),

was first promulgated by the Administrator in 1946

and was approved by Congress when it enacted what

is now Section 1821 several years later.’ The court of

*The VA home loan guaranty program was established

by the Servicemen’s Readjustment Act of 1944, ch. 268,

58 Stat. 284, 291. In 1945, Congress substantially liberalized

the loan guaranty provisions. Ch. 588, 59 Stat. 623, 626;

H.R. Conf. Rep. No. 1449, 79th Cong., Ist Sess. 14-17 (1945).

Within a few months of the 1945 amendment, the Administra-

tor promulgated the regulation establishing forgery as a de-

fense to VA liability on a guaranty. See 11 Fed, Reg. 2119,

2123 (1946). When Congress in 1948 enacted what is now 88

U.S.C. 1821, which expressly referred to the Administrator’s

authority to promulgate regulations establishing defenses to

liability on guaranties, it indicated its approval of regulations

then in effect. In describing the new provision of the statute,

the Senate Report stated: “Defenses based upon fraud or

material misrepresentation of the holder, or upon regulations

of the Veterans’ Administration in force on the date of issu-

ance of the guaranty or disbursement of the loan, are re-

13

appeals did not suggest that this regulation exceeds

the Administrator’s powers or is otherwise invalid.

By the same token, there is no dispute that Mrs.

Durham’s signatures on the mortgage and note were

forgeries. Thus, the VA was not liable on its guar-

anty under the terms of the regulation. The decision

of the court of appeals that the Administrator should

be estopped from recovering payments made in con-

nection with the guaranty disregards a longstanding

congressionally authorized limitation on the govern-

ment’s liability and permits unwarranted incursions

on the federal treasury.”

served.” S. Rep. No. 1701, 80th Cong., 2d Sess. 2 (1948). The

regulation establishing the defense of forgery has continued

virtually unchanged through the reenactment of Title 38 of

the United States Code in 1958 (Pub. L. No. 85-857, 72 Stat.

1105) to the present,

The Administrator has consistently interpreted 38 C.F.R.

36.4325 (a) to authorize recovery by the VA after payment, as

well as refusal to make a payment in the first place. See Mt.

Vernon Cooperative Bank v. Gleason, 367 F.2d 289, 292 (1st

Cir. 1966). The defense of forgery applies against assignees

as well as against the original lender. See Century Federal

Savings & Loan Ass’n Vv. Roudebush, 618 F.2d 969 (2d Cir.

1980).

1° The courts below concluded that estoppel of the VA in

this case would not harm the federal treasury because the

agency could always attempt to recover from the veteran bor-

rower (App. A, infra, 7a; App. C, infra, 36a-37a). However,

such attempts at recovery in themselves may be costly, and it

is uncertain whether the VA would be able to recover from a

borrower who recently defaulted on mortgage payments. The

courts below did not explain why they believed it appropriate

to impose the burden and risk of attempting to recover from

the veteran borrower on the VA, rather than on the original

lender, the assignee of the mortgage, or the company that

issued the insurance policy in connection with the mortgage.

In fact, Congress has delegated to the Administrator, not to

14

b. The court of appeals concluded that the Admin-

istrator should be estopped from recovering funds ex-

pended contrary to the regulation because the VA

failed promptly to disclose to respondent that it had

received an allegation of forgery and because it took

“affirmative actions” on which (in the court’s view)

respondent was entitled to rely, including acceptance

of the sheriff’s deed on the day the agency learned of

the forgery and subsequent payment of $30,000 to

respondent. in exchange for conveyance of the prop-

erty (App. A, infra, 7a). But this Court’s decisions

plainly establish that estoppel is not warranted by

either the VA’s conduct or any “reliance” by respond-

ent on that conduct.”

the courts, the task of deciding whether the government or the

holder of the guaranty should bear the risks associated with

events such as forgery. Congress clearly did not require the

Administrator to bear all possible risks in connection with a

home loan guaranteed by the VA. See United States v. Shimer,

supra, 367 U.S. at 382-383.

1! To the extent the majority relied on a purported excep-

tion to the general rule against estopping the government in

the case of “commercial transactions” (see App. A, infra,

5a-6a), it erred, as .judge McKay pointed out (id. at 14a-16a).

This Court firmly rejected such an exception in FCIC v. Merrill,

supra, stating that an undertaking by the federal government

“is not an ordinary commercial undertaking,” even when the

government engages in an activity such as providing insur-

ance. 332 U.S. at 383 n.1. The majority did not mention any

relevant feature of the VA loan guaranty program that would

distinguish it for these purposes from the crop insurance pro-

gram at issue in Merrill. Moreover, as this Court has noted,

“TCojur country has a long standing policy of compensating

veterans for their past contributions by providing them with

numerous advantages.” Regan v. Taxation With Representa-

tion, No. 81-2338 (May 23, 1983), slip op. 10. As Judge

McKay observed (App. A, infra, 14a-15a), the loan guaranty

program is more like a subsidy than an ordinary commercial

transaction.

15

Although this Court has indicated that serious af-

firmative misconduct might warrant an exception to

the rule against estopping the government (see page

11, note 8, supra), neither the district court nor

the court of appeals purported to find that the VA en-

gaged in any “affirmative misconduct” in this case.

The court of appeals concluded only that the VA had

failed to disclose the allegation of forgery and that it

had taken certain “affirmative actions” in connection

with the guaranty. In the absence of any finding of

serious affirmative misconduct, there can be no ques-

tion that the courts below erred in estopping the gov-

ernment. See JNS v. Miranda, supra, slip op. 3, 5.

Moreover, it is clear that the VA’s actions cannot

be characterized as misconduct at all. The record does

not show, and the district court did not find, that the

VA made any misrepresentation of fact or law. As

Judge McKay observed (App. A, infra, 23a-24a), the

VA has no legal duty to disclose an allegation of for-

gery. Nor is there any basis for imputing a good

faith duty of disclosure to the VA, particularly in the

period before the allegation was confirmed through

investigation.” In addition, there is no binding re-

quirement that the VA stop all action in connection

12 Indeed, if there were any good faith duty to disclose the

allegation of forgery, it belonged to Oklahoma Mortgage Com-

pany, which originally received the information suggesting

forgery and transmitted that information to the VA. Okla-

homa Mortgage, the original lender, continued to act as serv-

ice agent after it assigned the mortgage to respondent (App.

C, infra, 31a). It is unclear from the record whether Okla-

homa Mortgage in fact notified respondent of the allegation

of forgery and, if not, why it failed to do so. See App. A,

infra, $a.

16

with a guaranty whenever it suspects forgery.” Thus,

nothing the VA did or omitted to do in this case can

be described as misconduct. This alone is sufficient to

require reversal of the decision below.

Estoppel also is improper for the independent rea-

son that there is a complete absence of any showing

that respondent reasonably relied to its detriment on

the VA’s failure to disclose the possibility of forgery

or on its actions in connection with the guaranty.

The VA’s longstanding regulation put respondent on

notice that the agency would not be liable on its guar-

anty if it were discovered that a signature on the loan

papers had been forged. By the time respondent re-

ceived the assignment of the Durham mortgage, the

Administrator had for many years interpreted the

18 Internal VA guidelines, found in Department of Veterans

Benefits Manual M 26-4, § 2.06(e) (Jan, 20, 1975), indicate

that if the VA receives information suggesting a forgery, it

should stop all activity in connection with the property (in-

cluding payment for transfer of the property or payment of

any claim on the guaraniy) until a determination has been

made concerning liability under the guaranty or unvil review

by the VA Central Office. The VA’s failure to adhere to these

procedures was not cited by the courts below and would not

warrant estoppel in any event. See Schweiker v. Hansen,

supra, 450 U.S. at 789-790; cf. United States v. Caceres, 440

U.S. 741, 755-756 (1979). Moreover, VA compliance with the

guidelines would not necessarily have benefited respondent.

Under the guidelines, if the property had not been acquired

at the time the VA learned of a possible forgery the agency

would both have retained custody of the property and with-

held all payn-ents pending resolution of the forgery allegation.

The courts below appear to suggest at several points that the

VA may have acted in violation of some of its published regu-

lations. See App. A, infra, 6a, 8a; App. C, infra, 35a. Those

suggestions apparently are based on a misreading of the cited

regulations.

17

VA regulation to permit the agency to recover sums

already paid out on a guaranty following proof of

forgery. See page 13, note 9, supra. Thus, respondent

—an experienced financial institution unquestionably

familiar with VA-guaranteed mortgages—could not

have harbored any reasonable expectation that it

would be able to recover on the guaranty or retain

payments already made if forgery were discovered."

Finally, even if respondent reasonably could have

relied on the VA’s actions, it offered no evidence that

it suffered detriment as a result. As Judge McKay ob-

served (App. A, infra, 24a-26a), respondent already

had elected to convey the property to the VA by the

time the agency was informed of the allegation of

forgery.” There is no reason to believe that respond-

eee 2

14 See Woodstock/Kenosha Health Center v. Schweiker,

Nos. 82-2375 and 82-2485 (7th Cir. July 19, 1983), slip op.

9-10 (it is particularly inappropriate “to apply the * * *

equitable [estoppel] doctrine to protect skilled professionals

operating in their area of expertise with the government on

an intimate and long-term basis”).

16 The record does not show the precise date on which re-

spondent elected to convey the property to the VA. However,

VA regulations require a holder of a guaranty to make such

an election within 15 days of the foreclosure sale, 3£ C.F.R.

86.4820(a) (1). In this case, the foreclosure sale took place on

January 28, 1975 (App. A, infra, 2a, 25a). Thus, respondent

was required to make its election by February 12, 1975—

almost two weeks before the VA was informed of the forgery

allegation (id. at 25a).

In fact, the sheriff’s deed to the property may already have

been recorded in the name of the Administrator by the time

the VA learned of the possible forgery. The stipulation of

facts entered into by the parties in the district court states

(at § 11) that the sheriff’s deed showing the Administrator

as grantee of the property was recorded at 10:15 a.m. on

18

ent would have revoked its election or compelled re-

turn of the property if the VA had informed it of the

allegation at the earliest possible time. And even if

respondent could have obtained the return of the prop-

erty, there was no proof that respondent would have

been able to sell it for a higher price than respondent

received from the VA (id. at 7a, 26a n.21). Thus,

to the extent respondent may have “relied” on the

VA’s actions, it did not suffer any tangible detriment

as a result. In such circumstances, even estoppel

against a private party would be entirely inappro-

priate.

This case illustrates well the lengths to which the

lower courts have gone to avoid the principles set out

in this Court’s estoppel rulings. The courts below

were willing to estop the government in a case that

not only does not involve any government misconduct

or reasonable detrimental reliance by the private

party, but also lacks any real suggestion of unfair-

ness to the private party. The basic question in this

case is which party should bear the risk of loss result-

ing from forgery and default committed by third par-

ties. Despite the facts that a longstanding, statutorily

authorized, published regulation expressly relieves the

government of liability and that respondent—a so-

phisticated financial institution—was in a position to

avoid the risk of loss from forgery (e.g., by agree-

ment with the original lender or perhaps through pur-

chase of insurance), the courts below found that the

February 24, 1975. The VA was notified of the allegation

of forgery on “approximately the same date” (App. A, infra,

2a, lla; App. C, infra, 32a).

#* Apparently there was no bid higher than the $30,000 re-

spondent offered at the sheriff’s sale on January 28, 1975.

19

government nevertheless should bear the loss. The

readiness of the lower courts to impose unauthorized

financial liability on the government under the rubric

of estoppel is directly contrary to the teachings of

this Court’s decisions.

2. The estoppel issue presented by this case is im-

portant. The court of appeals’ suggestion that pay-

ments, or other “affirmative actions,” by a govern-

ment agency suffice to estop the government from re-

covering erroneous payments (or, in the words of the

court of appeals (App. A, infra, 7a), prevent an

agency from “unravel[ing] the yarn’’) threatens to

interfere with the smooth workings of numerous fed-

eral programs. Congress has created many funding

programs involving grants, loans, guaranties, and

other forms of financial assistance. The size and com-

plexity of these programs make it inevitable that

agencies sometimes will approve erroneous payments,

and agencies are constantly in the process of conduct-

ing audits or investigations to determine whether var-

ious payments are proper. In the VA home loan

guaranty program alone, there have been more than

500 investigations per year over the last few years.

During such investigations agencies frequently take

steps that could be characterized as “affirmative ac-

tions,” such as payment, processing of an application,

or some other activity that could lead beneficiaries

to expect that they may receive or retain benefits. If

the government could be estopped from recovering

payments that are found to be inconsistent with a

statute or regulation whenever it has taken such “af-

firmative actions,” there would be a significant impact

on the federal treasury. By the same token, if agen-

cies were to withhold payments or other actions when-

ever an allegation of impropriety surfaced, the result

20

would harm program participants such as respondent,

who might face substantial delays in recovering pay-

ments to which they are entitled.

As we have noted (see page 10, note 7), the deci-

sion below is not the only recent case in which the

lower courts have disregarded this Court’s estoppel

rulings. In Heckler v. Community Health Services,

No. 83-56 (filed July 14, 1983), we are seeking re-

view of a decision of the United States Court of Ap-

peals for the Third Circuit holding that the Secretary

of Hea'th and Human Services is estopped from re-

covering excess payments made to a provider of health

care services under the Medicare program. Like

Community Health Services, this case raises the ques-

tion of estopping a federal agency from recovering

payments made in contravention of a valid statute

and regulation. The majority in this case purported

to find an absence of guidance in this Court’s estoppel

decisions (App. A, infra, 3a), while Judge McKay

characterized tie subject of equitable estoppel of the

governirent as 4 “confused area of law” (id. at 9a).

If the Court grants certiorari in Community Health

Services, it may well clarify the principles that con-

fused the court below. Accordingly, we believe it would

be appropriate for the Court to hold this case pending

the disposition of Community Health Services.“

We are providing counsel for respondent with a copy of

our petition in Community Health Services.

21

CONCLUSION

The petition for a writ of certiorari should be held

pending disposition of the petition in Heckler v. Com-

munity Health Services, No. 83-56, and then disposed

of as appropriate.

Respectfully submitted.

REX E. LEE

Solicitor General

J. PAUL MCGRATH

Assistant Attorney General

KENNETH S. GELLER

Deputy Solicitor General

CAROLYN F. CORWIN

Assistant to the Solicitor General

WILLIAM KANTER

RICHARD A, OLDERMAN

BRUCE G. FORREST

Attorneys

AUGUST 1983

la

APPENDIX A

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

No. 80-1987

HOME SAVINGS AND LOAN ASSOCIATION OF

LAWTON, OKLAHOMA, PLAINTIFF-APPELLEE

Vv.

ROBERT P. NIMMO, ADMINISTRATOR OF THE

VETERANS ADMINISTRATION, DEFENDANT-APPELLANT

Appeal from the United States District Court

for the Western District of Oklahoma

(D.C. No. 78-1106-W )

[Filed Dec. 21, 1982]

Before SETH, McKAY and BREITENSTEIN, Cir-

cuit Judges.

BREITENSTEIN, Circuit Judge.

This action was brought in state court against an

official of the Veterans Administration, a federal

agency, to recover on a loan guaranty certificate. The

case was properly removed to federal court. 28

U.S.C. §§ 13846(a)(2) and 1361. After a non-jury

2a

trial the district court rejected the government de-

fense of forgery and gave judgment for the plaintiff.

V’e affirm.

In April, 1971, Oklahoma Mortgage Company

loaned Perey and Zelma Durham $34,000 on a resi-

dential property with the security of a note and mort-

gage. The loan was guaranteed vy the Veterans Ad-

ministration, VA, pursuant to 38 U.S.C. Chapter 37.

The note, mortgage and guaranty were subsequently

assigned to plaintiff-appellee, Home Savings and Loan

Association. Because of defaults in payments, Home

Savings, the assignee, brought foreclosure proceed-

ings on July 12, 1974. Zelma Durham was personally

served with process and made no claim that her sig-

natures on the note and mortgage were forged. At

the January 28, 1975, foreclosure sale, Home Sav-

ings bid in the property for $30,000, the amount VA

had authorized it to bid. Pursuant to 38 C.F.R.

§36.4320(a)(1), Home Savings exercised its option

to convey the property to VA which received a sher-

iff’s deed on February 24, 1975. On approximately

the same date, Oklahoma Mortgage, the original

lender, informed VA that Zelma’s signatures on the

note and mortgage might be forgeries. VA began an

investigation but did not inform Home Savings, the

assignee, of the forgery possibility or of the investi-

gation. Home Savings submitted to VA a claim for

$6,739.68 under the loan puaranty certificate. On

April 4, 1975, VA paid Home Savings $30,000, the

purchase price of the property at the foreclosure sale.

On April 16, VA sold the property for $31,000. On

October 16, VA paid Home Savings $6,733.19 under

the guaranty. Twelve days later, VA demanded that

Home Savings return the payment because the VA

investigation had established that Zelma’s signatures

8a

were forged. VA also demanded that Home Savings

pay it $1,055.44, as its loss because of expenses on

the sale of the property. Home Savings paid VA

the $6,733.19 which it had received under the loan

guaranty but refused to pay the $1,055.44 claimed as

a sale loss. VA then offset the latter amount against

other amounts due Home Savings.

Home Savings brought this suit to recover both

the $6,733.19 and $1,055.44 amounts. The trial court

held that VA was estopped from asserting the de-

fense.of forgery because it had knowledge of the for-

gery when it accepted the sheriff’s deed.

On this appeal VA contends that the district court

improperly applied estoppel against the government.

The VA guaranty is incontestable but the Adminis-

trator may assert defenses based on fraud, 38 U.S.C.

§ 1821, or forgery, 38 C.F.R. § 36.4825(a). The for-

geries of Zelma’s signatures were established at the

trial and are not contested by Home Savings. VA

learned of the possibility of forgeries from Oklahoma

Mortgage Co., the original 'ender. No claim is made

that Home Savings had any knowledge of the for-

geries until advised by VA in October, 1975, long

after the foreclosure sale, the VA reimbursement of

Home Savings of the $30,000 paid at the sale, and the

VA sale of the property for $31,000.

None of the Supreme Court decisions on estoppel

against the government present facts having any

similarity to those here. The most recent decision is.

Schweiker v. Hansen, 450 U.S. 785. The Court re-

jected the estoppel claim of an applicant for social

security benefits. The Court held that an agency’s

field representative’s erroneous statement and non-

compliance with the agency’s Field Manual did not

estop the Secretary’s denial of the claimed retroactive

4a

benefits. In so doing the Court said, Id. at 788: “This

Court has never decided what type of conduct by a

Government employee will estop the Government

from insisting upon compliance with valid regula-

tions governing the distribution of welfare benefits.”

In Federal Crop Insurance Corp. v. Merrill, 332

U.S. 380, the Court rejected an estoppel claim aris-

ing out of the acceptance by the corporation’s agent

of a crop insurance application which did not comply

with an applicable regulation. The Court said hard-

ship from innocent ignorance does not justify an

estoppel claim and that the government’s freedom

from estoppel “merely expresses the duty of the

courts to observe the conditions defined by Congress

for charging the public treasury.” Id. at 385.

INS v. Hibi, 414 U.S. 5, a naturalization case, de-

nied an estoppel claim based on administrative fail-

ures of a federal agency. In so doing it quoted, Id.

at 8, the statement in Utah Power & Light Co. v.

United States, 243 U.S. 389, 409, that: “As a gen-

eral rule laches or neglect of duty on the part of of-

ficers of the Government is no defense to a suit by

it to enforce a public right or protect a public inter-

est... .” The qualifying phrase “general rule”

would seem to leave the door slightly ajar.

Montana v. Kennedy, 366 U.S. 308, was a natural-

ization case where estoppel was based on the er-

roneous advice given by » consular officer. The Court

held that the misconcuct fe!l far short of that needed

to estop the government. ‘Ihe Court recognized that

“there may be circumstances in which the United

States is estopped to deny citizenship because of the

conduct of its officials.” Id. at 315.

Several Tenth Circuit decisions discuss estoppel

against the government. Atlantic Richfield Company

5a

v. Hickel, 10 Cir., 482 F.2d 587, 591-592, involved

royalties payable to the government under a federal

oil and gas lease. Atlantic Richfield claimed estoppel

on the basis of representations made by the Acting

Director of the Geological Survey and acied on by it

as lessee. The court held that the United States is

not “estopped from asserting a lawful claim by the

erroneous or unauthorized actions or statements of

its agents or employees.”

Albrechtsen v. Andrus, 10 Cir., 570 F.2d 906, 909-

910, rejected a claim of estoppel based on laches and

neglect of duty by officials in connection with a coal

prospecting permit. United States v. Browning, 10

Cir., 680 F.2d 694, 702, says it is fundamental that

the United States is not estopped by representation

made without authority by a federal agent.

Sweeten v. United States Department of Agricul-

ture Forest Service, 10 Cir., 684 F.2d 679, says that

in a dispute over land boundaries. a private owner

must show “affirmative misconduct by the govern-

ment or its agents to establish estoppel.” Id. at 682.

In so holding the court relied on United States v.

Ruby Co., 9 Cir., 588 Fd.2d 697, 703-704, cert. de-

nied, 442 U.S. 917. Ruby relied on Santiago v. Im-

migration and Naturalization Service, 9 Cir., 526

F.2d 488, 491-493, which in turn relied on INS v.

Hibi, supra, 414 U.S. 5, 8.

In Schweiker v. Hansen, supra, 450 U.S. at 788-

789, n. 4, the Court referred to cases in which fed-

eral courts have applied estoppel against the govern-

ment and distinguished them on the facts. None of

the above mentioned cases rejecting estoppel against

the government relate to facts comparable to those

presented in the instant case.

In the situation before us, the government, through

VA, engaged in a commercial transaction pursuant

6a

to 38 U.S.C. § 1810, authorizing guaranty of loans

to veterans for the purchase of homes. Oklahoma

Mortgage made the loan and received the VA guar-

anty. It then assigned the loan and the VA guaranty

to Home Savings. After default, Home Savings ad-

mittedly complied with VA procedures for foreclosure.

VA knew of the suspected forgery when it accepted

the sheriff’s deed and paid Home Savings $30,000.

The parties agree that the district court correctly

stated the tests for estoppel. They are:

(1)—The party to be estopped must know the

facts.

(2)-—He must intend that his conduct will be acted

on or must so act that the party asserting the estoppel

has the right to believe that it was so intended.

(3)—The latter must be ignorant of the true

facts.

(4)—He must rely on the former’s conduct to his

injury.

Before discussing these elements we note that 38

C.F.R. § 36.4325(a), says that there is no liability

on a loan guaranty when the loan papers are forged

but its subsection (1) excepts a holder in due course

without knowledge. Two decisions have held that

forgery is a defense against a holder “even though

that person is innocent of any wrong doing.” Cen-

tury Federal Savings and Loan Association v. Roun-

debush [sic], 1 Cir., 618 F.2d 969, 972, and Mt. Ver-

non Cooperative Bank v. Gleason, 2 Cir., 367 F.2d

289, 292. Neither of those cases involved estoppel.

At the time of the foreclosure proceedings, the

acquisition of the property by VA, and the payment

by VA to Home Savings of $30,000 for the property,

VA knew, but did not disclose to Home Savings, the

possibility of forgery. Failure to disclose is inaction.

7a

The VA acceptance of the sheriff’s deed and its pay-

ment of $30,000 to Home Savings are affirmative ac-

tions. Home Savings was entitled to rely on and to

treat the transaction as an accomplished fact. VA

now seeks to take advantage of its discovery, many

months later, that Zelma’s signatures were forged.

Then, it was too late to unravel the yarn. VA had

both acquired and sold the property.

No harm has occurred to the fiscal policies of the

United States. The VA has recourse against the

borrowing veteran. See United States v. Shimer, 367

U.S. 374, 386. The VA had authority to do what it

did and did not deprive the public of any statutory

protection. See Semaan v. Mumford, D.C.Cir., 335

F.2d 704, 706, n. 6, Smale & Robinson, Inc. v. United

States, 8.D.Calif., 123 F.Supp. 457, 464-466.

By its affirmative acts, VA acquired and sold the

property without disclosure to Home Savings of the

forgery possibility. Home Savings complied with the

VA regulations and relied on its acts. We are con-

vinced that the first three estoppel tests are satis-

fied. The question of injury remains for discussion.

Home Savings argues that, if it had known of the

forgery possibility and the complications incident

thereto, it could have retained the propertv and sold

it at a profit. The only mention of value in the record

is the VA appraisal of $32,000. Home Savings pre-

sented no evidence of market value. The lost profit

claim is speculative. Speculation does not suffice to

prove injury.

The exact date of VA’s knowledge of the forgery

of Zelma’s signatures does not appear in the record.

On March 28, 1975, before the sale of the property

by VA, Home Savings submitted its claim for re-

imbursement under the VA loan guaranty in the

8a

amount of $6,739.68, later reduced to $6,733.19. On

October 16, 1975, VA issued a treasury check to

Home Savings for that amount. The government .

brief says, p. 3: “Shortly before the Guaranty Claim

was paid, the Veterans Administration determined

that Mrs. Durhem’s signature was in fact a forgery.”

On October 28, VA demanded that Home Savings

return the guaranty payment and it did so. The ques-

tion then is whether the loss of the loan guaranty is

an injury. By its affirmative acts from the inception

of the foreclosure suit and until after the guaranty

payment, VA led Home Savings to rely on its com-

pliance with VA regulations. VA does not claim

that Home Savings failed to comply with any ap-

plicable regulation. The acts of VA were inconsistent

with denial of the validity of the original loan trans-

action. VA is estopped from denying that validity.

Home Savings is entitled to payment of the loan

guaranty.

The situation with regard to the $1,055 sale ex-

pense presents another problem. VA acted in viola-

tion of its own regulations in assessing the sale costs

against Home Savings. With narrow exceptions, not

here applicable, the responsibilities of Home Savings

ceased upon acceptance of the property by VA. See

38 C.F.R. § 36.4320(h) (6), (7), (8), (9), and (10).

The collection of the $1,055 from Home Savings by

exercise of a set off is a compensable injury. VA

is estopped from asserting otherwise.

The trial court awarded pre-judgment interest to

Home Savings. VA’s opening brief attacks that

award. Its reply brief withdraws that attack.

Affirmed.

9a

McKAY, Circuit Judge, dissenting:

In a dispute over the payment of a home loan

subsidy, the majority invokes equitable principles to

estop the Veterans Administration from asserting a

congressionally authorized forgery defense. Relying

on factual dissimilarities, the majority attempts to

distinguish past Supreme Court decisions that have

consistently sheltered the government from equitable

estoppel.’ I believe that the majority’s distinctions

will prove to be chimerical rather than precedential

and will introduce new contradictions into an already

confused area of law.* Moreover, I believe that the

majority’s approach diverts attention from the funda-

mental principles that underlie dcctrines of equity.

Only through an inquiry into the relationship be-

tween the government and private entities, and an

analysis of the proper exercise of judicial power, wiil

a coherent theory of equitable estoppel of the gov-

ernment emerge. For these reasons, I respectfully

dissent.

I.

The district court’s findings of fact are, in es-

sence, as follows: In April 1971, the Veterans Ad-

1 See Schweiker v. Hansen, 450 U.S. 785 (1981) (per

curiam); INS v. Hibi, 414 U.S. 5 (1973) (per curiam) ;

Montana v. Kennedy, 366 U.S. 308 (1961); Federal Crop In-

surance Corp. v. Merrill, 332 U.S. 380 (1947); Utah Power

& Light Co. v. United States, 243 U.S. 389 (1917).

2 As Justice Marshall recently noted, the question of when

the government may be equitably estopped has been the sub-

ject of “considerable ferment,” dividing panels and generat-

ing inconsistencies throughout the courts of appeals. Schwei-

ker v. Hansen, 450 U.S. 785, 791 (1981) (Marshall, J., dis-

senting). See generally Note, Equitable Estoppel of the Gov-

ernment, 79 Colum. L. Rev. 551 (1979).

10a

ministration (VA) guaranteed a $34,000 home loan

by issuing a loan guaranty certificate to the lender

and mortgagee, Oklahoma Mortgage Company, Inc.

(Oklahoma Mortgage). Oklahoma Mortgage assigned

the note, mortgage, and the loan guaranty certificate

to Home Savings and Loan Association (Home Sav-

ings). Several years later, the borrowers defaulted,

Home Savings brought a successful foreclosure suit,

and the sheriff offered the mortgaged property for

sale. In accordance with the VA’s loan guaranty reg-

ulations governing the “sale of security,”* the VA

specified that a minimum of $30,000 would be cred-

ited to the indebtedness of the borrower on account

of the value of the security sold. Home Savings suc-

cessfully bid that amount for the property at the

sheriff’s sale, retaining its option to resell the prop-

erty to the VA. Home Savings eventually did choose

* The pertinent regulation of the Veterans Administration

provides in part as follows:

Upon receipt by the Administrator of notice of a judi-

cia] or statutory sale, or other public sale under power

of sale contained in the loan instruments, to liquidate any

security for a guaranteed or insured loan, he may specify

in advance of such sale the minimum amount which shall

be credited to the indebtedness of the borrower on ac-

count of the value of the security to be sold, subject to

the provisions of paragraphs (a) (1), (2), (3) and (4)

of this section ....

38 C.F.R. § 36.4820(a) (1981). The relevant portions of the

VA regulations have remained unchanged since 1975. See 36

Fed. Reg. 320 (1971) ; 40 Fed. Reg. 34591 (1975).

‘If the holder of a VA guaranteed home loan purchases

the mortgaged property at a price not in excess of the amount

the VA has specified as credited toward indebtedness, then

lila

to convey the property to the VA for the specified

amount of $30,000, and on February 24, 1975, the

VA received a sheriff’s deed pursuant to the order

of Home Savings. On approximately this same date,

the VA obtained knowledge through Oklahoma Mort-

gage that the signature of a borrower, Zelma R.

Durham, was allegedly forged on the note and mort-

gage. Under VA regulations promulgated by au-

thority of Congress, the VA incurs no liability on ac-

count of a loan guaranty if a signature in the loan

papers is forged. Con: quently, the VA began an

the holder may convey the property to the VA. The pertinent

regulation provides as follows:

If a minimum amount for credit to the indebtedness

has been specified in relation to a sale of real property

and the holder is the successful bidder at the sale for an

amount not in excess of such specified amount the holder

shall credit to the indebtedness the amount so specified.

The holder thereupon may retain the property or not

later than 15 days after the date of sale advise the Ad-

ministrator of his election to convey or transfer the prop-

erty, or the rights thereto derived through the saie, to

the Administrator.

38 C.F.R. § 36.4820(a) (1) (1981). The amount paid by the

Administrator will generally be the amount he previously

specified as credited toward indebtedness. See 38 C.F.R.

§ 36.4320(g) (1981).

5 In the Veterans’ Benefits Act, Pub. L. No. 85-857, 72 Stat.

1105 (1958) (as amended), Congress provided as follows:

Any evidence of guaranty or insurance issued by the

Administrator shall be conclusive evidence of the eligi-

bility of the loan for guaranty or insurance under the

provisions of this chapter and of the amount of such

guaranty or insurance. Nothing in this section shall pre-

clude the Administrator from establishing, as against the

origina! lender, defenses based on fraud or material mis-

representation. The Administrator shall not, by reason

12a

investigation into the alleged forgery, but it did not

notify Home Savings of the allegations or the investi-

gation. During the investigation, the VA processed

Home Savings’ claim for reimbursement on the losses

incurred on the loan, and paid Home Savings the full

amount of the claim, $6,733.19. However, in October

1975, the VA requested that Home Savings return

this sum. The VA eventually denied Home Savings’

claim for reimbursement, concluding that the signa-

tures of Zelma Durham were indeed forgeries that

nullified the loan guaranty obligation.

of anything contained in this section, be barred from es-

tablishing, by regulations in force at the date of such

issuance or disbursement, whichever is the earlier, par-

tial defenses to the amount payable on the guaranty or

insurance.

88 U.S.C. § 1821 (1976). Pursuant to this authorization, the

Administrator retained loan guarantee regulations originally

promulgated under similar statutory authority in the Service-

man’s Readjustment Act of 1944, 58 Stat. 284. The pertinent

regulation provides as follows:

Subject to the incontestable provisions of 38 U.S.C.

1821 as to loans guaranteed or insured on or subsequent

to July 1, 1948, there shall be no liability on account of a

guaranty or insurance, or any certificate or other evi-

dence thereof, with respect to a transaction in which a

signature to the note, the mortgage, or any other loan

papers, or the application for guaranty or insurance is

a forgery; or in which the certificate of discharge or the

certificate of eligibility is counterfeited, or falsified, or is

not issued by the Government.

38 C.F.R. § 36.4325(a) (1981). The Court of Appeals for

the Second Circuit has held that this regulation precludes

liability under a VA loan guarantee to assignees of the mort-

gage, as well as original lenders, if a mortgagor’s signature

is forged. Century Federal Savings & Loan Association v.

Roudebush, 618 F.2d 969 (2d Cir. 1980).

13a

On the basis of these findings of fact, the district

court ruled that, notwithstanding the forgery in the

loan papers, the VA was obligated to Home Savings

under the terms of the loan guaranty. The court held

that the VA was equitably estopped from asserting

the forgery defense, concluding that by accepting the

sheriff’s deed to the mortgaged property, and by fail-

ing to notify Home Savings of the forgery allegations,

the VA induced a justifiable reliance by Home Sav-

ings that the loan guaranty claim would be honored.

II.

The majority of this panel agrees with the district

court that the VA is equitably estopped from assert-

ing the forgery defense. The majority opinion re-

views cases from the Supreme Court* and the Tenth

Circuit’ and concludes that “[nJjone of the above

mentioned cases rejccting estoppel against the gov-

ernment relate to facts comparable to those presented

in the instant case.” Ante at 5a. The majority sug-

gests that the instant case involves a “commercial

transaction,” ante at 5a, and is therefore distinguish-

able from precedent denying equitable estoppel of the

government.

* See Schweiker v. Hansen, 450 U.S. 785 (1981) (per

curium); INS v. Hibi, 414 U.S. 5 (1973) (per curiam) ;

Montana v. Kennedy, 366 U.S. 308 (1961) ; Federal Crop In-

surance Corp. v. Merrill, 332 U.S. 380 (1947); Utah Power

& Light Co. v. United States, 243 U.S. 389 (1917).

7 See Sweeten v. Department of Agriculture Forest Service,

684 F.2d 679 (10th Cir. 1982); United States v. Browning,

630 F.2d 694 (10th Cir. 1980), cert. denied, 451 U.S. 988

(1981); Albrechtsen v. Andrus, 570 F.2d 906 (10th Cir.),

cert. denied, 439 U.S. 818 (1978); Atlantic Richfield Co. v.

Hickel, 432 F.2d 587 (10th Cir. 1970).

l4a

Initially, I state my belief that it is insufficient to

distinguish Home Savings’ claim on the basis that it

involves a commercial transaction, without offering

some explanation of the relevance of this distinction.

As Justice Marshall has noted, it only adds confusion

to the already unsettled area of estoppel to delineate

factual distinctions without elaborating why or how

these distinctions affect the legal question involved.

Schweiker v. Hansen, 450 U.S. 785, 792-93 (1981)

(Marshall, J. dissenting).

I assume that the majority considers “commercial

transactions” distinguishable from other government

undertakings because such transactions are in some

sense “proprietary” func‘ions.* However, even as-

suming that this ground for distinction finds support

in law, I do not believe that the loan guaranty can

properly be characterized as a proprietary commer-

cial transaction for purposes of applying equitable

estoppel against the government. The loan guaranty

® Lower federal courts have occasionally applied equitable

estoppel against the government in situations where the gov-

ernment acts in a “proprietary capacity.” See United States

v. Georgia-Pacific Co., 421 F.2d 92, 100-01 & n.17 (9th Cir.

1970). See generally Note, Equitable Estoppel Against the

Government, 79 Colum. L. Rev. 551, 555-57 (1979). The dis-

tinction typically is based on the rationale that the govern-

ment’s irnmunity from estoppel is an attribute of sovereignty,

and therefore the government retains its immunity only so

long as it acts in a sovereign capacity. Jd. However, the

Supreme Court has accepted neither the proprietary distinc-

tion nor its rationale. Jd. at 557. Indeed. the Court has said

in dicta that “the Federal Government performs no ‘proprie-

tary’ functions. If the enabling Act is constitutional and if

the instrumentality’s activity is within the authority granted

by the Act, a governmental function is being performed.”

Federal Land Bank v. Board of County Comm’rs., 368 U.S.

146, 150-51 (1961) (footnote omitted).

l5a

program is a government entitlement to veterans,

see 38 U.S.C. § 1802 (1976), providing public as-

sistance to those who have discharged a patriotic

service to the country. Admittedly, the program ve-

lies on commercial institutions, such as savings and

loan associations, and conventional instruments of

commerce, such as loan guaranties, to accomplish its

goals. However, the use of commercial institutions

and instruments of commerce does not alter the es-

sential character of the loan guaranty program; the

program remains a subsidy in support of a public

policy objective. Nor does the use of commercial in-

stitutions and instruments transform the government

into simply “another private litigant” for purposes

of equitabie estoppel. Indeed, in Federal Crop Insur-

ance Corp. v. Merrill, 332 U.S. 380 (1948), the Su-

preme Court rejected such contentions, concluding

that the Government’s issuance of crop insurance to

farmers through a federally chartered corporation

could not be characterized as an ordinary commercial

undertaking for the purposes of equitable estoppel.®

332 U.S. at 383-84 & n.1. I perceive no differences

between the loan guaranty program for veterans and

the crop insurance program for farmers that can

place the former beyond Merrill’s embrace.”

*The Court specifically stated that “[g]overnment is not

partly public or partly private, depending upon the govern-

mental pedigree of the type of a particular activity or the

manner in which the Government conducts it.” 3382 U.S. at

383-84.

1° In particular, I believe that it is irrelevant that the holder

of the note, rather than the veteran, asserts estoppel. Both

are participants in the government’s loan guaranty program.

The broad reach of Merrill precludes the possibility that a

program can have a sovereign ¢haracter with respect to some

participants, and a proprietary character with respect to

others. See supra note 9.

l6a

The majority’s “commercial transaction” distinc-

tion is untenable, given the nature of the VA’s loan

guaranty program and the reasoning of Merrill. Fur-

thermore, I anticipate that the disinction will be dif-

ficult to apply. I suspect that today’s adoption of this

standard inaugurates a procession of future cases

that will be distinguished on the basis of “finespun

and capricious” characterizations. See Indian Towing

Co. v. United States, 350 U.S. 61, 68 (1955). Con-

sequently, I decline to follow the majority’s avenue of

analysis and instead offer my own approach.

Ill,

A court exercises its power of equitabie estoppel to

prevent a litigant from asserting claims or defenses

that arise as a result of the litigant’s own wrong-

doing. The elements of equitable estoppel are de-

scribed in various formulas,” all of which essentially

require a showing of misleading conduct by one party

that results in reasonable, detrimental reliance by

another.

Litigants persistently have attempted to invoke the

doctrine of equitable estoppel against the government,

4 For example, in Sweeten v. Department of Agriculture

Forest Service, 684 F.2d 679 (10th Cir. 1982), the court set

out the following elements:

(1) The party to be estopped must know the facts; (2)

He must intend that his conduct shall be acted on or

must so act that the party asserting the estoppel has a

right to believe it is so intended; (3) The latter must be

ignorant of the true facts; and (4) He must rely on the

former’s conduct to his injury.

684 F.2d at 682 n.5. A similar six-part formulation is found

in 3 P. Pomeroy, Equity Jurisprudence, § 805, at 191-92 (5th

ed. Symons 1941).

17a

and have generated confusion and controversy in the

process. When faced with the issue, the Supreme

Court has repeatedly refused to estop the government,

but has declined to provide guidance beyond the facts

presented in each case. See, e.g., INS v. Miranda, 51

U.S.L.W. 3358 (U.S. Nov. 8, 1982) (per curiam) ;

Schweiker v. Hansen, 450 U.S. 785 (1981) (per

curiam); JNS v. Hibi, 414 U.S. 5 (1973) (per

curiam). In response, lower courts have continued to

apply equitable estoppel against the government, but

have required a showing of additional elements or

facts beyond those required for application of equi-

table estoppel against a private party. See, e.g.,

Meister Bros. Inc. v. Macy, 674 F.2d 1174 (7th Cir.

1982); Portmann v. United States, 674 F.2d 1155

(7th Cir. 1982). As a result, a plethora of tests have

emerged for applying equitable estoppel against the

government, none of which has been approved by the

Supreme Court.”

I believe that this search by the lower courts for a —

talismanic test has resulted in a departure from the

fundamental inquiries that underlie the doctrine of

equitable estoppel. Whether a case involves the gov-

12 For example, recent tests have included distinctions be-

tween reliance on misrepresentations of procedural rather

than substantive rules, Hansen v. Harris, 619 F.2d 942 (2d

Cir. 1980), rev’d sub nom. Schweiker v. Hansen, 450 U.S. 785

(1981) (per curiam) ; between applications of estoppel that

do and do not impact the public treasury, Miranda v. INS,

673 F.2d 1105 (9th Cir. 1982), rev'd, 51 U.S.L.W. 3358 (Nov.

8, 1981) (per curiam) ; and between sovereign and proprie-

tary activities of the government, see Portmann v. United

States, 674 F.2d 1155, 1167-69 (7th Cir. 1982) (treating the

U.S. Postal Service as a “quasi-private” entity). A variety

of other tests have been suggested as well over the years. See

generally Note, Equitable Estoppel of the Government, 79

Colum. L. Rev. 551 (1979).

18a

ernment or whether it involves private parties, the

same two general questions inevitably arise: (1) did

misleading conduct induce reasonable detrimental re-

liance? and, (2) are there nevertheless circumstances

that caution the court to withhold the exercise of its

equitable powers? The various proposed tests for as-

serting equitable estoppel against the government, in-

cluding the “commercial transaction” distinction used

by the majority, have diverted attention from a rea-

soned analysis of these inquiries, blurring the distinc-

tions between the two questions and confounding the

identification of relevant factors.

The preliminary question, whether misleading con-

duct has induced reasonable reliance, must be an-

swered in light of the duties and expectations be-

tween the parties. The question remains the same

whether estoppel is asserted against the government

or against a private actor. However, the underlying

duties and expectations that inform the inquiry may

depend on the identity of the parties. In particular,

dealings with the government do not necessarily sup-

port the same duties and expectations as dealings

between private parties." Accordingly, the allegedly

13The government typically acts through congressionally

created agencies whose conduct is governed by statutes and

regulations and, at the outer perimeter, by the Constitution.

The content of the governing law shapes the duties of the

agency in its dealings with private parties and the expecta-

tions of the parties in their dealings with the government.

Although the governing law may subject the agencies to the

same burdens as private parties, see, e.g., Federal Tort Claims

Act, 28 U.S.C. § 2674 (1976) (subjecting United States to

tort liability “in the same manner and to the same extent as

a private individual under like circumstances ... .”), there

is no inherent requirement that it do so. See 28 U.S.C. § 2680

(1976) (exempting various governmental agencies from the

Federal Torts Claims Act).

19a

misleading character of governmental conduct, as

well as the reasonableness of reliance on that conduct,

must be evaluated in light of duties and expectations

properly attributable to the government. Of primary

relevance to this evaluation are the constitutional,

statutory and regulatory provisions controlling the

government’s conduct, interpreted in light of the na-

ture of the government’s activities and the identity

of the private party.”

By comparison, the question of whether a court

should withhold the exercise of equitable powers im-

plicates different concerns. The courts have defined

limits to the use of equitable remedies based on con-

siderations of fairness and the proper exercise of ju-

dicial power. See generally D. Dobbs, Remedies 45-

65 (1973). In cases involving private parties, such

considerations are reflected in the application of gen-

eral principles such as the “clean hands” require-

ment, Precision Instrument Manufacturing Co. v.

Automotive Maintenance Machine Co., 324 U.S. 806,

814 (1945), and, more generally, the promotion of

the “ends of justice’, Dickerson v. Colgrove, 100 U.S.

578, 580 (1880). However, when estoppel is as-

serted against the government, an additional consid-

eration arises, that of the court’s relationship with

the coordinate branches of government. In particu-

lar, the separation of powers doctrine may instruct

courts that, absent exceptional circumstances, they

4 T specifically note that the issue of whether the govern-

ment engaged in “affirmative misconduct” is not relevant to

this inquiry, since this characterization of the government’s

conduct does not relate to whether the conduct was mislead-

ing, or whether the conduct induced reliance. Instead, I be-

lieve the “affirmative misconduct” characterization is relevant

to the second inquiry, whether the court should exercise its

equitable powers. See infra note 17.

20a

should withhold the imposition of equitable estoppel

against the government if the estoppel would frus-

trate the purpose of valid statutes expressing the will

of Congress.

I believe that the Supreme Court’s decisions re-

garding equitable estoppel of the government can be

harmonized and understood by separating these two

inquiries. The per curiam decisions in JNS v. Mi-

randa, 51 U.S.L.W. 3358 (U.S. Nov. 8, 1982) and

INS vy. Hibi, 414 U.S. 5 (1978), and the decision in

Montana v. Kennedy, 366 U.S. 308 (1961) seem to be

decided on the basis of the initial inquiry, whether

misleading conduct induced reasonable reliance. In

both Miranda and Hibi, the Court’s opinions suggest

that the conduct of the INS was simply not mislead-

ing.” In Montana, the Court admitted that while the

In Miranda, an alien who married a citizen claimed that

the INS was estopped from denying his application for per-

manent residence status because of “unreasonable delay” by

the INS in processing his application. During the processing

period his marriage dissolved, and his eligibility for a change

in status ended. The Court declined to conclude that the delay

was unwarranted, given the responsibility of the INS to fully

investigate applications. 51 U.S.L.W. at 3359 & n.4. In Hibi,

the Court concluded that failure to publish fully the naturali-

zation rights of aliens who served in the United States Armed

Forces and to provide an authorized naturalization repre-

sentative overseas was not conduct that would give rise to an

estoppel against the government. 414 U.S. at 8-9. A dissent-

ing opinion in Hibi suggested that the failure to provide a

naturalization representative was an attempt by the Execu-

tive Branch to deny aliens their right to naturalization. 414

U.S. at 11 (Douglas, J. dissenting). However, the Court did

not discuss this assertion and apparently determined that the

INS acted within the constitutional, statutory and regulatory

provisions governing its operation. Thus, both Miranda and

Hibi seem to be cases where the government’s conduct con-

formed with the duties and obligations set forth by law and

consequently was not misleading.

2la

action of the goverment could have been misleading,

it could not have induced reasonable reliance.** Since

in these cases the basic requisites for equitable estop-

pel had not been met, there was no need to reach the

second inquiry of whether the lower court should have

exercised its equitable powers to estop the government.

Other Supreme Court decisions, Schweiker v. Han-

sen, 450 U.S. 785 (1981) (per curiam) and Federal

Crop Insurance Corp. v. Merrill, 332 U.S. 380 (1947),

seem to rest on this second inquiry. In these cases,

the Court did not contest the claims that the govern-

ment engaged in misleading conduct and induced rea-

sonable reliance. Instead, the Court observed that a

party’s reliance on unauthorized or even erroneous

statements of agents of the government concerning

eligibility for public entitlements does not provide

grounds for a court to abnegate its duty to observe

the conditions provided by Congress for charging the

public treasury. See Schweiker, 450 U.S. at 788-89;

Merrill, 332 U.S. at 385. Thus, in these cases the

Court has clearly recognized the separation of powers

doctrine as a ground for limiting the exercise of

equitable estoppel against the government, at least

in situations where unauthorized statements of gov-

ernment agents threaten to charge the treasury. The

doctrine may limit the use of estoppel against the

government in other situations as well. The Supreme

‘In Montana, an alien claimed that the United States was

estopped to deny him citizenship because the American Con-

sular Office refused to issue his mother a passport to the

United States before his birth. The Court noted that the

United States did not require his mother to have a passport

to return to the country at that time. 366 U.S. at 314. Since

no passport was needed, the alien’s mother could not have

reasonably relied on the refusal to issue the passport in de-

ciding not to return to the United States.

22a

Court has recently noted that lower courts should

withhold estoppel in matters, such as naturalization,

that do not involve the public fisc, but nevertheless,

involve congressional policies “implicating broad pub-

lie concern.” Miranda, 51 U.S.L.W. at 3359. Despite

the broad reach of this language, the Supreme Court

has also indicated that the barrier to equitable es-

toppel provided by the separation of powers doctrine

is not absolute. The Court has repeatedly recognized

that, notwithstanding the resulting interference with

congressional prerogatives, equitable estoppel of the

government could be permissible in exceptional cir-

cumstances, such as affirmative misconduct by agents

of the government." Miranda, 51 U.S.L.W. at 3359;

Schweiker, 450 U.S. at 788; Hibi, 414 U.S. at 8;

Montana, 366 U.S. at 314-15. The Court thus recog-

nizes that some circumstances may implicate inter-

ests of sufficient importance to override the barriers

to estoppel imposed by the sepaartion of powers doc-

trine. Indeed, this recognition is consistent with the

“pragmatic, flexible approach” that the Court has

employed in resolving clashes between coordinate

branches of government. Nixon v. Administrator of

General Services, 433 U.S. 425, 442 (1977).

17 Although the Supreme Court has cited affirmative mis-

conduct as providing a potential ground for imposing equi-

table estoppel against the government, it has not explained

the relevance of this factor. In my understanding, affirmative

misconduct is relevant because the executive branch has a

responsibility to prevent government agents from engaging

in intentional, reckless, or grossly negligent misconduct. The

failure of the executive branch to prevent such misconduct

provides grounds for the courts to surmount the separation

of powers barrier and impose equitable estoppel. It is in that

light that I understand this court's adoption of the affirma-

tive misconduct standard in Sweeten v. Department of Agri-

culture Forest Service, 684 F.2d 679 (10th Cir. 1982).

28a

The Supreme Court cases thus reflect the follow-

ing state of law with respect to equitable estoppel of

the government. At a minimum, a party asserting

estoppel must show misleading conduct that induced

reasonable detrimental reliance, taking into account

the duties, obligations, and expectations that flow

from its relationship with the government. Where

this reliance is based on an unauthorized act of a

government agent, the court should withhold imposi-

tion of estoppel if it would result in charging the

public treasury against the will of Congress. Fur-

thermore, the separation of powers doctrine may re-

quire courts to withhold estoppel in other situations

as well. Nevertheless, equitable estoppel of the gov-

ernment may be permissible, notwithstanding its

threat to the goals of Congress, in exceptional cir-

cumstances, such as affirmative misconduct of the

government.

This perspective on the state of the law informs

my view of the proper resolution of the case now be-

fore this court.

IV.

Home Savings claims that the VA should be equi-

tably estopped from asserting its forgery defense be-

cause the VA failed to notify Home Savings of the

forgery allegations at the time that they arose. Home

Savings claims that the failure to provide notification

misled it into believing that its claim under a VA

loan guaranty would be honored. Thus, the first in-

quiry, as discussed above, is whether the VA truly

engaged in misleading conduct that induced reason-

able detrimental reliance by Home Savings, given

the duties and expectations between the parties.

Home Savings points to the VA’s silence in the

face of suspicion of forgery as the source of mislead-

24a

ing conduct. Indeed, courts have long held that si-

lence can serve as the basis of misleading conduct

justifying equitable estoppel, but only if the silent

party had a duty to speak. See, e.g., Unity Banking

& Savings Co. v. Bettman, 217 U.S. 127 (1910);

Codell v. American Surety, 149 F.2d 854 (6th Cir.

1945). Home Savings cites no legally imposed duty

in the statutes and regulations which govern the VA,

or in the Constitution, that requires notification of

loan guaranty holders when the VA receives allega-

tions that signatures in the loan papers are forged.

Instead, Home Savings apparently believes that under

some general principle of good faith,” the VA is obli-

gated to disclose its suspicions of forgery prior to the

completion of a conclusive investigation.

I would hesitate to rely on bare notions of good

faith, completely detached from constitutional and

statutory requirements, to impose such a far-reaching

duty on a government agency.” But even assuming

18 Cf. Columbia Broadcast System, Inc. v. Stokely-Van

Camp, Inc., 522 F.2d 369, 378 (2d Cir. 1975) (under New

York law of estoppel, the duty of a private party to disclose

information may be founded on principles of ethics and good

faith).

1° The Supreme Court has suggested in dicta that the gov-

ernment is subject to general principles of “‘good faith,” say-

ing, “{a] citizen has the right to expect fair dealing from

his government.” S & E Contractors, Inc. v. United States,

406 U.S. 1, 10 (1972). However, this statement seems simply

to suggest that government agencies must act within the

sphere of authority provided by statute. In S & E Contrac-

tors, the Atomic Energy Commission (AEC) resolved a con-

tract dispute with a private party according to the terms

specified in the contract. The General Accounting Office

(GAO) overturned the AEC’s resolution, and the private

party challenged the GAO action. The Supreme Court ruled

~

2ia

that this duty of disclosure existed, the VA’s silence

cannot be considered misleading since Home Savings

apparently elected to convey the property before the

VA received the forgery allegations. The facts, as

found by the district court, indicate that Home Sav-

ings purchased the mortgage property at the sheriff’s

sale on January 28, 1975. Under VA regulations,

Home Savings had 15 days, until February 12, 1975,

in which to advise the VA of its election to convey

the property to the VA. See 38 C.F.R. § 36.4320(a)

(1). The VA did not receive the forgery allegations

until on or about February 24, 1975, almost two

weeks after the deadline for Home Savings to exer-

cise its option to convey. Thus, at the time that Home

Savings was required to make its election to convey

the property,” the VA had no knowledge of the

forgery allegations. Home Savings can hardly claim

that the VA, through its silence, engaged in mislead-

ing conduct, since the VA had no reason at this time

to suspect forgery. Likewise, Home Savings cannot

claim that the VA engaged in misleading conduct by

its failure to provide notice of the forgery allega-

that Congress had delegated authority to the AEC to resolve

the contract dispute and that the GAO had no power to inter-

fere. 406 U.S. at 19.

* The scant record in this case does not indicate on what

date the election to convey was actually made. As the party

asserting estoppel, Home Savings bore the burden of showing

misleading conduct and reasonable reliance. See, e.g., Tom W.

Carpenter Equip. Co. v. General Elec. Credit Corp., 417 F.2d

988, 990 (10th Cir. 1969). Hence, Home Savings had to prove

that the VA was apprised of the forgery allegations at the

time Home Savings elected to convey the property. In the

absence of evidence to the contrary from Home Savings, it

should be presumed that Home Savings complied with the

regulatory requirement and elected to convey the property

within the fifteen day time deadline.

26a

tions on the day that it received them. By that time,

Home Savings had already elected to convey the

property to the VA.

Since the VA did not engage in misleading conduct,

there is no reason to determine the two remaining

components of the first inquiry; namely, whether

Home Savings’ reliance was reasonable, and whether

it resulted in a detriinent.*" Likewise, there is no

reason to proceed to the second inquiry, whether the

court should withhold the exercise of its equitable

powers. Indeed, given the constitutional implications

of applying equitable estoppel against a coordinate

branch of government, a court should proceed with

this inquiry only if it is necessary to resolve the case

before it.

V.

Home Savings has failed to demonstrate a basic

requisite for equitable estoppel and, accordingly, its

claim to estoppel should be denied. The majority

simply overlooks this fact, and in the process deter-

mines that the government is subject to equitable

estoppel because it engaged in a “commercial trans-

action.”” The commercial transaction distinction is

untenable under the facts of this case, is inconsistent

with Supreme Court precedent, and introduces a

troublesome concept into our law. Under these cir-

cumstances, I am compelled to respectfully dissent.

™ T note in passing that Home Savings’ claim of detriment

seems purely speculative. As the majority notes, Home Sav-

ings introduced no evidence that if it retained the property

it could have sold it for more than it received from the VA.

27a

APPENDIX B

MARCH TERM—April 25, 1983

Before Honorable Oliver Seth, Honorable Jean S.

Breitenstein, Honorable William J. Holloway, Jr.,

Honorable Robert H. McWilliams, Honorable James

E. Barrett, Honorable William E. Doyle, Honorable

Monroe G. McKay, Honorable James K. Logan, and

Honorable Stephanie K, Seymour, Circuit Judges.

No. 80-1987

HOME SAVINGS AND LOAN ASSOCIATION OF

LAWTON, OKLAHOMA, PLAINTIFF-APPELLEE

v8.

AMERICAN FIRST TITLE AND TRUST COMPANY,

a Corporation, and OKLAHOMA MORTGAGE COMPANY,

INC., a Corporation, DEFENDANTS

ROBERT P. NIMMO, Administrator of the

Veterans Administration, DEFENDANT-APPELLANT

The court, in order to correct a clerical error in the

issuance of this order on April 21, 1983, reissues the

order nunc pro tunc to read as follows:

This matter comes on for consideration of the peti-

tion for rehearing and suggestion for rehearing in

banc filed by respondent in the captioned cause.

Upon consideration whereof, the petition for re-

hearing is denied by the panel to whom the case was

argued and submitted.

The petition for rehearing having been denied by

the panel to whom the case was argued and submit-

28a

ted, and the court having been polled on rehearing in

banc, and a vote having been taken, the suggestion

for rehearing in banc is denied. Circuit Judges Mc-

Kay, Logan and Seymour voted to grant rehearing

in banc.

/8/ Howard K. Phillips

HOWARD K. PHILLIPS

Clerk

29a

MARCH TERM—April 21, 1983

Before Honorable Oliver Seth, Honorable Jean S&S.

Breitenstein, Honorable William J. Holloway, Jr.,

Honorable Robert H. McWilliams, Honorable James

E. Barrett, Honorable William E. Doyle, Honorable

Monroe G. McKay, Honorable James K. Logan, and

Honorable Stephanie K. Seymour, Circuit Judges.

No. 80-1987

HOME SAVINGS AND LOAN ASSOCIATION OF

LAWTON, OKLAHOMA, PLAINTIFF-APPELLEE

v8.

AMERICAN First TITLE AND TRUST COMPANY,

a Corporation, and OKLAHOMA MORTGAGE COMPANY,

INC., a Corporation, DEFENDANTS

ROBERT P. NIMMO, Administrator of the

Veterans Administration, DEFENDANT-APPELLANT

This matter comes on for consideration of the pe-

tition for rehearing and suggestion for rehearing in

bance filed by respondent in the captioned cause.

Upon consideration whereof, the petition for re-.

hearing is denied by the panel to whom the case was

argued and submitted.

The petition for rehearing having been denied by

the panel to whom the case was argued and sub-

mitted and no member of the panel nor judge in regu-

lar active service on the court having requested that

the court be polled on rehearing in banc, Rule 35,

Federal Rules of Appellate Procedure, the suggestion

for rehearing in banc is denied.

/s/ Howard K. Phillips

HOWARD K. PHILLIPS

Clerk

80a

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

CIV-78-1106-W

HoME SAVINGS & LOAN ASSOCIATION OF

LAWTON, OKLAHOMA, PLAINTIFF

v8.

AMERICAN FIRST TITLE & TRUST COMPANY,

OKLAHOMA MORTGAGE CoMPANY, INC.,

MAX CLELAND ADMINISTRATOR OF THE

VETERANS ADMINISTRATION, DEFENDANTS

[Filed Jul. 22, 1980]

FINDINGS OF FACT AND

CONCLUSIONS OF LAW

Before LEE R. WEST, United States District

Judge.

MEMORANDUM OPINION

This is an action for judgment for a loan guaranty

claim. The case was pretried to the Court on May

8, 1980. The case was tried to the Court, sitting

without a jury, on June 11, 1980. Having benefit

of trial briefs, supplemental briefs, and proposed

findings of fact and conclusions of law by the parties,

and having heard the evidence and the arguments of

counsel, the Court makes the following findings of

fact and conclusions of law.

I. FINDINGS OF FACT

This case originally arose out of a default on a

mortgage note upon which the Veterans Administra-

3la

tion had issued a Loan Guaranty Certificate. The

events that transpired are basically not in dispute,

and are summarized as follows.

On April 7, 1971, a Joint Tenancy Warranty Deed

was recorded in the Oklahoma County Clerk’s Office

showifig Percy L. and Zelma R. Durham as owners

of the property in question. Also on April 7, 1971,

a $34,000.00 Mortgage was recorded showing Percy

L. and Zelma R. Durham as mortgagors of the prop-

erty and Oklahoma Mortgage Company, Inc. (herein

Oklahoma Mortgage) as mortgagee. Thereafter the

Veterans Administration duly issued its Loan Guar-

anty Certificate, dated April 27, 1971, to Oklahoma

Mortgage. The Note, Mortgage, and Loan Guaranty

Certificate were assigned to Plaintiff Home Savings

and Loan Association of Lawton, Oklahoma (herein

Home Savings) by assignment dated April 20, 1971

and recorded on April 23, 1971. At the time of the

assignment of the Mortgage and Note, Oklahoma

Mortgage represented to Home Savings that the loan

was a fully guaranteed loan under the Servicemen’s

Readjustment Act of 1944, administered through the

Veterans Administration. Oklahoma Mortgage fur-

ther represented to Home Savings that in the event

a default should occur under the terms of the Note

and Mortgage, which default resulted in the fore-

closure of the premises covered by the Mortgage, that

Home Savings would be compensated to the full ex-

tent provided under the terms of the Loan Guaranty

issued pursuant to the Servicemen’s Readjustment

Act of 1944. Oklahoma Mortgage, upon transferring

the loan to Home Savings undertook to act as service

agent for Home Savings. American First Title and

Trust Company (herein American First) thereafter

issued to Oklahoma a Title Guaranty Policy, under

the terms of which American First insured the holder

82a

and owner of the Mortgage in issue against loss by

reason of forgery. On or about March 1, 1974, the

mortgagors, Percy L. and Zelma R. Durham, de-

faulted on the Note and Mortgage, and a foreclosure

suit was instituted by Home Savings on July 12,

1974 in a case filed in Oklahoma County District

Court. The co-mortgagor, Zelma R. Durham, was

personally served with process. On or about Decem-

ber 6, 1974, a Journal Entry of Judgment was en-

tered in the case by the District Court which effec-

tively quited [sic] title to the property. Specifically

the Journal Entry read:

“The Court further finds that the Defendants

and original mortgagors, Percy L. Durham and

Zelma R. Durham, husband and wife, made, exe-

cuted and delivered the Note and Mortgage sued

upon by the Plaintiff [Home Savings], and that

said Plaintiff is the owner and holder thereof by

assignment of record.”

The property was then sold by the sheriff of Okla-

homa County, with appraisement, to Home Savings

on January 28, 1975, pursuant to special execution

in Order of Sale for the sum of $30,000.00, the

amount the Veterans Administration authorized

Home Savings to bid. On or about February 24,

1975, the Veterans Administration received a Sher-

iff's Deed pursuant to the order of Home Savings.

On approximately this same date, February 24, 1975,

the Veterans Administration obtained knowledge

through Oklahoma Mortgage, that the signature of

co-mortgagor Zelma R. Durham was allegedly forged

on the Note and Mortgage. Based on this informa-

tion, the Veterans Administration began an investiga-

tion into the alleged forgery. However, Home Savings

was never notified by the Veterans A. ministration

boa

of the allegations of forgery or of the investigation

and on March 28, 1975, Home Savings submitted its

claim for reimbursement under the Loan Guaranty

Certificate in the amount of $6,739.68. In filing its

claim for reimbursement, Home Savings complied

with all the applicable rules and regulations of the

Veterans Administration. On April 4, 1975 the Vet-

erans Administration forwarded $30,000.00 to Home

Savings representing the sale price of the property

pursuant to the Sheriff’s sale. The Veterans Admin-

istration thereafter, on April 16, 1975, with knowl-

edge that an alleged forgery existed on the Note and

Mortgage, and having received Home Savings’ claim

for reimbursement under the Loan Guaranty Certifi-

cate, sold the property to Clyde and Lillian O. Muse for

a sale price of $31,000.00. This sum represents a cash

downpayment of $2,000.00 and $29,000.00 being fi-

nanced by the Veterans Administration under the

terms of a separate Note and Mortgage. The selling

price was $1,000.00 more than the price which the

Veterans Administration had paid Home Savings for

the property. Sonietime later Home Savings’ claim

for reimbursement on the Loan Guaranty was re-

duced to $6,733.19 because of a variance in interest

computation, and on October 16, 1975, the Veterans

Administration issued Home Savings a Treasury

check in that amount. Home Savings received the

Treasury check representing the amount due on the

Loan Guaranty on October 22, 1975 and cashed it.

Later that week, on October 28, 1975, the Veterans

Administration requested the return of the check,

stating that it had been issued in error. Home Sav-

ings, having already cashed the Treasury check, is-

sued a new check to the Veterans Administration for

the $6,733.19 amount. The Veterans Administration

ultimately denied Home Savings’ claim for reimburse-

84a

ment under the Loan Guaranty Certificate, based on

its own investigation and determination that Zelma

R. Durham’s signature on the Mortgage and Note

was a forgery. Thereafter, on January 19, 1976, the

Veterans Administration demanded an additional

$1,055.44 plus daily interest of $0.18, for the loss to

the Veterans Administration which was a result of

the costs involved in the transfer and sale of the

property. Home Savings refused to comply with this

last demand and the Veterans Administration col-

lected the amount by an offset against a subsequent,

unrelated claim. Thus, on October 20, 1976 the Vet-

erans Administration collected from Home Savings

by offset the amount of $1,104.94.

II. CONCLUSIONS OF LAW

This action orginated in the District Court of Okla-

homa County, Oklahoma, Defendant Max Cleland,

Administrator for the Veterans Administration, be-

ing subject to the jurisdiction of the state court

pursuant to 28 U.S.C. §1820(a)(1). Oklahoma

Mortgage and American First are corporations duly

organized and existing under the laws of the State

of Oklahoma with their principal place of business

located in Oklahoma City, Oklahoma. Home Savings

is a corporation duly organized and existing under

the laws of the State of Oklahoma with its principal

place of business in Lawton, Oklahoma. The action

was removed by Max Cleland to the United States

District Court for the Western District of Oklahoma

pursuant to 28 U.S.C. §§ 1846(a), 1861 which au-

thorize suit in federal court when an employee of an

agency of the United States is sued for actions that

are within the scope of his office. Accordingly, this

Court has jurisdiction over the subject matter and

parties of this litigation.

85a

Plaintiff urges that the Veterans Administration

should be estopped to deny the validity and genuine-

ness of Zelma R. Durham’s signature on the Note

and Mortgage since it had actual knowledge of the

alleged forgery on the same date that it accepted the

Sheriff’s Deed, February 24, 1975. Instead of notify-

ing Home Savings of the alleged forgery and trans-

ferring the property back to it in accordance with

VA Regulation 4320, the Veterans Administration

sold the property on April 16, 1975 to Clyde and

Lillian O. Muse. Home Savings stresses that had it

known of the existence of the alleged forgery and

that it was the Veterans Administration’s intention

to possibly deny Home Savings’ claim under the Loan

Guaranty Certificate, Home Savings certainly would

not have elected to convey the subject property by

Sheriff’s Deed to the Veterans Administration, but

would have kept the property to sell at the highest

possible price in order to minimize its loss, in the

event of a determination that the forgery did in fact

exist.

In several recent cases, the courts, in resolving an

issue of estoppel against the Government, have held

that the Government was estopped in some particu-

lar where estoppel was found to be necessary to pre-

vent injustice to private parties who had relied to

their detriment upon statements or conduct furnished

them by a government agent, the only limitation be-

ing that the invocation of estoppel against the Gov-

ernment does not impair the public’s interests. See

27 ALR Fed. 702 § 8, Estoppel Against Federal Gov-

ernment; Russell Corporation v. United States, 537

F.2d 474 (Court of Claims 1976); U.S. v. Lazy F.C.

Ranch, 481 F.2d 985 (9th Cir. 1973); United States

v. State of California, 403 F.Supp. 874 (E.D.Cal.

1975); U.S. v. 31.45 Acres of Land, 376 F. Supp.

36a

1277 (E.D.Wash. 1974); Oil Shale Corporation v.

Morton, 370 F.Supp. 108 (D.Colo. 1973). |

For the doctrine of estoppel to be applied, how-

ever, the facts must show the following elements to

be present: (1) the party to be estopped must know

the facts; (2) he must intend that his conduct shall

be acted on or must so act that the party assessing

the estoppel has a right to believe it is so intended;

(3) the latter must be ignorant of the true facts;

and (4) he must rely on the former’s conduct to his

injury. Russell Corp. v. United States, swpra, 537

F.2d at 484; United States v. State of California,

supra, 403 F.Supp. at 900; Flesner v. Cooper, 162

P.1112 (Okla. 1917).

In the case at bar these elements are clearly satis-

fied. Thus the Veterans Administration, having been

put on notice of a potential forgery of one of the

signatures on the Note and Mortgage went ahead

and purchased and subsequently sold the property

without notifying Home Savings of the alleged for-

gery or the possibility that it would not be reim-

bursed on the Loan Guaranty Certificate. The Vet-

erans Administration, by conveying the property to

the Muse’s, effectively precluded Home Savings from

making itself whole by retaining the property and

possibly reselling at a higher price.

The Veterans Administration cannot accept the

benefit of its conveyance to the Muse’s while at the

same time denying the validity of one uf the essen-

tial elements of such conveyance. 16 O.S. $11. See

also, Burke Aviation Corporation vy. Alton Jennings

Company, 377 P.2d 578 (Okla. 1963).

Furthermore, the Veterans Administration will

sustain no loss nor incur any detriment by paying

this Loan Guaranty since the Servicemen’s Readjust-

87a

ment Act of 1944 affords an independent right of

indemnity to the Veterans Administration. Thus, the

public policy of the United States will not be sig-

nificantly frustrated by directing the Veterans Ad-

ministration to fully satisfy Home Savings’ claim un-

der the Loan Guaranty Certificate.

Accordingly, despite an earlier determination by

the Court that the Veterans Administration is not

barred by any estoppel theory, the Court now holds

that the Veterans Administration should be equi-

tably estopped to deny the validity of Zelma R. Dur-

ham’s signature on the Note and Mortgage. Home

Savings therefore is entitled to judgment against the

Veterans Administration in the amount of $7,838.13

which includes $6,733.19 as its Loan Guaranty claim

and $1,104.94 in amounts which were wrongfully off-

set against it. Prejudgment interest and attorney’s

fees are not awarded, subject to a timely filed motion

by Home Savings requesting same.

IT IS SO ORDERED this 22nd day of July, 1980.

/s/ Lee R. West

LEE R. WEST

United States District Judge

88a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

CIV-78-1106-W

HoME SAVINGS & LOAN ASSOCIATION OF

LAWTON, OKLAHOMA, DEFENDANTS

v8.

AMERICAN First TITLE & TRUST COMPANY,

OKLAHOMA MORTGAGE COMPANY, INC.,

MAX CLELAND ADMINISTRATOR OF THE

VETERANS ADMINISTRATION, DEFENDANTS

[Filed Jul. 22, 1980]

JUDGMENT

Based on the Findings of Fact and Conclusions of

Law filed herein on July 22nd, 1980, judgment is

hereby entered in favor of Plaintiff, Home Savings

and Loan Association of Lawton, Oklahoma, and

against Defendant Max Cleland, Administrator of

the Veterans Administration, in the amount of

$7,838.13. No liability is found concerning Defend-

ant American First Title and Trust Company and

Defendant Oklahoma Mortgage Company, Inc.

Costs are awarded to Plaintiff.

Dated this 22nd day of July, 1980.

/3/ Lee R. West

LEE R. WEST

United States District Judge

Entered in Judgment Docket 7-22-80

39a

APPENDIX E

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

No. CIV-78-01106-E

HOME SAVINGS AND LOAN ASSOCIATION

OF LAWTON, OKLAHOMA, PLAINTIFF

v8.

AMERICAN FIRST TITLE AND TRUST COMPANY,

a corporation, OKLAHOMA MORTGAGE COMPANY, INC.,

a corporation, and MAX CLELAND, Administrator

of the Veterans Administration, DEFENDANTS

[Filed Aug. 29, 1979]

ORDER

This case originally arose out of a default on a

mortgage note upon which the Veterans Administra-

tion had issued a Loan Guarantee Certificate. The

mortgage and certificate came into the possession of

the plaintiff by an assignment from the original

holder, Oklahoma Mortgage Company, on April 23,

1971. Subsequently, the loan went into default, and

the plaintiff foreclosed on the mortgaged property and

caused a Sheriff’s Deed to be issued to the Veterans

Administration on February 24, 1975. The Veterans

Administration claims that it was informed on the

same date that one of the purported makers of the

note, Zelma R. Durham, whose monthly income was

part of the basis upon which the Loan Guarantee Cer-

tificate was issued, had not in fact signed the note,

but rather her signature was forged.

The Veterans Administration claims that it con-

ducted an investigation into the validity of the ques-

40a

tioned signature and determined that it was not gen-

uine. The Veterans Administration then demanded

and received $6,733.18, which had previously been

paid to the plaintiff on the Loan Guarantee Certifi-

cate, plus $1,055.44 interest obtained by offset against

other claims filed by the plaintiff against the Vet-

erans Administration.

The plaintiff has filed a motion for summary judg-

ment against Max Cleland, Administrator of the Vet-

erans Administration, for the amounts quoted above.

The plaintiff claims that the Veterans Administra-

tion is estopped to deny the validity and genuineness

of Zelma R. Durham’s signature on the note and

mortgage to defeat the plaintiff’s claim under the

Loan Guarantee Certificate. The plaintiff further

contends that even if there was a forgery, which it

specifically denies, the defense of forgery may be

available against Oklahoma Mortgage Company, the

original lender, but not against the plaintiff.

Co-defendant American First Title and Trust Com-

pany has filed a “Response” in support of the plain-

tiff’s motion against its co-defendant Max Cleland.

American First agrees that the Veterans Administra-

tion is estopped to deny the validity of the signature

and further contends that the defense of forgery is

barred by the doctrine of res judicata.

Defendant Max Cleland, Administrator of the Vet-

erans Administration, has filed a “Cross-Motion for

Summary Judgment,” claiming that he is entitled to

a judgment against the plaintiff as a matter of law.

He argues that the Veterans Administration is not

estopped to deny the validity of the signature, nor is

such a defense barred by the doctrine of res judicata.

It appears to the court that defendant Cleland is

correct in his argument that the forgery defense is

not barred by the doctrine of res judicata. In the

4la

foreclosure suit in state court, there was identity nei-

ther of parties nor of claim to the present case. No

party in the state court action had an interest in

showing the challenged signature to have been a for-

gery, as did the Veterans Administration. Further-

more, the state court action was based on an overdue

note and foreclosure thereon by judicial process,

whereas this action concerns a Loan Guarantee Cer-

tificate issued by the Veterans Administration.

Moreover, it appears to the court that the statutes

and regulations cited both by the plaintiff and by de-

fendant Max Cleland support the Veterans Adminis-

tration’s view that defendant Cleland can assert the

forgery defense against the plaintiff. The court does

not believe that the defense is barred by any estoppel

theory. However, neither does the court believe that

defendant Max Cleland is entitled to summary judg-

ment as a matter of law at the present time. There

still remains a dispute as to a material issue of fact.

That issue is whether or not the signature of Zelma

R. Durham on the note was in fact forged. Summary

judgment is therefore inappropriate. Rule 56 Fed.R.

Civ.P.

Accordingly,

IT IS ORDERED that both the Motion for Sum-

mary Judgment filed by the plaintiff and the Cross-

Motion for Summary Judgment filed by defendant

Max Cleland are hereby denied.

The Clerk of the Court is directed to mail a copy

hereof to counsel of record.

DATED this 29 day of August, 1979.

/s/ Luther B. Eubanks

LUTHER B. EUBANKS

United States District Judge

42a

APPENDIX F

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

NOVEMBER TERM—December 21, 1982

Before Honorable Oliver Seth, Honorable Monroe G.

McKay and Honorable Jean S. Breitenstein, Circuit

Court Judges.

No. 80-1987

(D. C. No. 78-1106 W)

HOME SAVINGS AND LOAN ASSOCIATION

OF LAWTON, OKLAHOMA, PLAINTIFF-APPELLEE

v8.

AMERICAN FIRST TITLE AND TRUST COMPANY,

a corporation, and OKLAHOMA MORTGAGE COMPANY,

INC., a Corporation, DEFENDANTS

ROBERT P. NIMMO, Administrator of the

Veterans Administration, DEFENDANT-APPELLANT

JUDGMENT

This cause came on to be heard on the record on

appeal frorn the United States District Court for the

Western District of Oklahoma, and was argued by

counsel.

Upon consideration whereof, it is ordered that the

judgment of that court is affirmed.

/s/ Howard K. Phillips

HOWARD K. PHILLIPS

Clerk

TG. 8. covennuent paintine orrice; 1903 412480 «684

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