author: Justice Stevens Justice Rehnquist,

text:
    HECKLER, SECRETARY OF HEALTH AND HUMAN SERVICES v. COMMUNITY HEALTH SERVICES OF CRAWFORD COUNTY, INC., et al.
    No. 83-56.
    Argued February 27, 1984
    Decided May 21, 1984

      Deputy Solicitor General Getter argued the cause for petitioner. With him on the briefs were Solicitor General Lee, Assistant Attorney General McGrath, Carolyn F. Corwin, William Ranter, and Richard A. Olderman.

      Raymond G. Hasley argued the cause for respondents. With him on the brief was Brian W. Ashbaugh

        Jack N. Goodman filed a brief for the National Association for Home Care et al. as amici curiae urging affirmance.

   Justice Stevens

delivered the opinion of the Court.

Under what is recognized for present purposes as an incorrect interpretation of rather complex federal regulations, during 1975, 1976, and 1977 respondent received and expended $71,480 in federal funds to provide health care services to Medicare beneficiaries to which it was not entitled. The question presented is whether the Government is estopped from recovering those funds because respondent relied on the express authorization of a responsible Government agent in making the expenditures.

Under the Medicare program, Title XVIII of the Social Security Act, 79 Stat. 291, as amended, 42 U. S. C. §§ 1395-1395vv, providers of health care services are reimbursed for the reasonable cost of services rendered to Medicare beneficiaries as determined by the Secretary of Health and Human Services (Secretary). § 1395x(v)(l)(A). Providers receive interim payments at least monthly covering the cost of services they have rendered. §1395g(a). Congress recognized, however, that these interim payments would not always correctly reflect the amount of reimbursable costs, and accordingly instructed the Secretary to develop mechanisms for making appropriate retroactive adjustments when reimbursement is found to be inadequate or excessive. § 1395x(v)(l)(A)(ii). Pursuant to this statutory mandate, the Secretary requires providers to submit annual cost reports which are then audited to determine actual costs. 42 CFR §§405.454, 405.1803 (1982). The Secretary may reopen any reimbursement determination within a 3-year period and make appropriate adjustments. §405.1885.

The Act also permits a provider to elect to receive reimbursement through a “fiscal intermediary.” 42 U. S. C. §1395h; 42 CFR §421.103 (1982). If the intermediary the provider has nominated meets the Secretary’s requirements, the Secretary then enters into an agreement with the intermediary to have it perform those administrative responsibilities she assigns it. §§421.5, 421.110. These duties include receipt, disbursement, and accounting for funds used in making Medicare payments, auditing the records of providers in order to ensure payments have been proper, resolving disputes over cost reimbursement, reviewing and reconsidering payments to providers, and recovering over-payments to providers. §§421.100(b), (c), (e), (f), 421.120(e). The fiscal intermediary must also “serve as a center for, and communicate to providers, any information or instructions furnished to it by the Secretary, and serve as a channel of communication from providers to the Secretary.” 42 U. S. C. § 1395h(a)(2)(A).

Respondent Community Health Services of Crawford County, Inc. (hereafter respondent), is a nonprofit corporation. In 1966 it entered into a contract with petitioner’s predecessor, the Secretary of Health, Education, and Welfare, to provide home health care services to individuals eligible for benefits under Part A of the Medicare program, 42 U. S. C. §§ 1395c to 1395Í-2. Under the contract, respondent received reimbursement through a fiscal intermediary, the Travelers Insurance Cos. (Travelers).

In 1973 Congress enacted the Comprehensive Employment and Training Act (CETA), 87 Stat. 839, codified, as amended, at 29 U. S. C. § 801 et seq. (1976 ed. and Supp. V), and repealed, Pub. L. 97-300, 96 Stat. 1357, authorizing the use of federal funds to provide training and job opportunities for economically disadvantaged persons. In 1975 respondent began participating in the program, which reimbursed it for the salaries and fringe benefits paid to certain of its employees. CETA funds made it possible for respondent to take on additional personnel and to provide additional home health care services.

To prevent what would be in effect double reimbursement of providers’ costs, one of the regulations concerning reasonable costs reimbursable under the Medicare program indicates that grants received by a provider in order to pay specific operating costs must be subtracted from the reasonable costs for which the provider may receive reimbursement. After obtaining a CETA grant, respondent’s administrator contacted Travelers to ask whether the salaries of its CETA-funded employees who provided services to patients eligible for Medicare benefits were reimbursable as reasonable costs under Medicare. Travelers’ Medicare manager orally advised respondent that the CETA funds were “seed money” within the meaning of § 612.2 of the Provider Reimbursement Manual, which is defined as “[g]rants designated for the development of new health care agencies or for expansion of services of established agencies,” and therefore, even though the CETA employees’ salaries constituted specific operating costs paid by a federal grant, they were reimbursable under the Medicare program.

Relying on Travelers’ advice, respondent included costs for which it was receiving CETA reimbursement in its cost reports, and received reimbursement for those sums amounting to $7,694, $32,460, and $31,326 in fiscal 1975, 1976, and 1977, respectively. On several occasions during this period, respondent requested and received from Travelers oral verification of the propriety of this treatment. With these additional funds, respondent expanded its annual number of home health care visits from approximately 4,000 in 1974 to over 81,000 in the next three years. Its annual budget increased during that period from about $200,000 to about $900,000.

It is undisputed that correct administrative practice required Travelers to refer respondent’s inquiry to the Department of Health and Human Services for a definitive answer. However, Travelers did not do this until August 7, 1977, when a written request for instructions was finally submitted to the Philadelphia office of the Department’s Bureau of Health Insurance. Travelers was then formally advised that the CETA funds were not “seed money” and therefore had to be subtracted from respondent’s Medicare reimbursement. On October 7,1977, Travelers formally notified respondent of this determination. Travelers then reopened respondent’s cost reports for the preceding three years and recomputed respondent’s reimbursable costs, determining that respondent had been overpaid a total of $71,480.

In May 1978 Travelers made a formal demand for repayment of the disputed amount. Respondent filed suit and obtained temporary injunctive relief against the Secretary and Travelers; in November 1979, the parties entered into a stipulation providing that the Secretary would postpone any attempts at recoupment and that the civil action would be stayed pending the outcome of administrative review.

Thereafter, the Secretary’s Provider Reimbursement Review Board (PRRB) conducted a hearing and issued a written opinion rejecting the position that CETA funds were “seed money.” The PRRB found, however, that the Secretary’s right to recoup the 1975 overpayment was barred because Travelers had not given respondent a written notice of reopening within the 3-year limitations period; thus, the amount in dispute was reduced to approximately $63,800. On April 10,1980, respondent filed a complaint in the District Court seeking review of the administrative determination. The District Court consolidated that case with the equitable action that had been filed about two years earlier. On cross-motions for summary judgment, the District Court ruled in favor of the Secretary, accepting the PRRB’s view of the Secretary’s regulations and rejecting respondent’s claim that the Secretary ought to be estopped to deny that the CETA grants were “seed money” because of the representations of her agent, Travelers. The District Court held that it was unreasonable for respondent to believe it could be in effect twice reimbursed for a given expense.

The Court of Appeals reversed, reaching only the estoppel question. Community Health Services of Crawford County, Inc. v. Califano, 698 F. 2d 615 (CA3 1983). It held that the Government may be estopped by the “affirmative misconduct” of its agents and that Travelers’ erroneous advice coupled with its failure to refer the question to the Secretary constituted such misconduct. It rejected as “clearly erroneous” the District Court’s finding that it was unreasonable for respondent to rely on Travelers’ advice, concluding instead that respondent acted reasonably because the relevant regulation had no clear meaning and respondent had no source other, than Travelers to which it could turn for advice.

HH

Estoppel is an equitable doctrine invoked to avoid injustice in particular cases. While a hallmark of the doctrine is its flexible application, certain principles are tolerably clear:

“If one person makes a definite misrepresentation of fact to another person having reason to believe that the other will rely upon it and the other in reasonable reliance upon it does an act . . . the first person is not entitled
“(b) to regain property or its value that the other acquired by the act, if the other in reliance upon the misrepresentation and before discovery of the truth has so changed his position that it would be unjust to deprive him of that which he thus acquired.” Restatement (Second) of Torts §894(1) (1979).

Thus, the party claiming the estoppel must have relied on its adversary’s conduct “in such a manner as to change his position for the worse,” and that reliance must have been reasonable in that the party claiming the estoppel did not know nor should it have known that its adversary’s conduct was misleading. See Wilber National Bank v. United States, 294 U. S. 120, 124-125 (1935).

HH

When the Government is unable to enforce the law because the conduct of its agents has given rise to an estoppel, the interest of the citizenry as a whole in obedience to the rule of law is undermined. It is for this reason that it is well settled that the Government may not be estopped on the same terms as any other litigant. Petitioner urges us to expand this principle into a flat rule that estoppel may not in any circumstances run against the Government. We have left the issue open in the past, and do so again today. Though the arguments the Government advances for the rule are substantial, we are hesitant, when it is unnecessary to decide this case, to say that there are no cases in which the public interest in ensuring that the Government can enforce the law free from estoppel might be outweighed by the countervailing interest of citizens in some minimum standard of decency, honor, and reliability in their dealings with their Government. But however heavy the burden might be when an estoppel is asserted against the Government, the private party surely cannot prevail without at least demonstrating that the traditional elements of an estoppel are present. We are unpersuaded that that has been done in this case with respect to either respondent’s change in position or its reliance on Travelers’ advice.

Ill

To analyze the nature of a private party’s detrimental change in position, we must identify the manner in which reliance on the Government’s misconduct has caused the private citizen to change his position for the worse. In this case the consequences of the Government’s misconduct were not entirely adverse. Respondent did receive an immediate benefit as a result of the double reimbursement. Its detriment is the inability to retain money that it should never have received in the first place. Thus, this is not a case in which the respondent has lost any legal right, either vested or contingent, or suffered any adverse change in its status. When a private party is deprived of something to which it was entitled of right, it has surely suffered a detrimental change in its position. Here respondent lost no rights but merely was induced to do something which could be corrected at a later time.

There is no doubt that respondent will be adversely affected by the Government’s recoupment of the funds that it has already spent. It will surely have to curtail its operations and may even be forced to seek relief from its debts through bankruptcy. However, there is no finding as to the extent of the likely curtailment in the volume of services provided by respondent, much less that respondent will reduce its activities below the level that obtained when it was first advised that the double reimbursement was proper. Respondent may need an extended period of repayment or other modifications in the recoupment process if it is to continue to operate, but questions concerning the Government’s method of enforcing collection are not before us. The question is whether the Government has entirely forfeited its right to the money.

A for-profit corporation could hardly base an estoppel on the fact that the Government wrongfully allowed it the interest-free use of taxpayers’ money for a period of two or three years, enabling it to expand its operation. No more can respondent claim any right to expand its services to levels greater than those it would have provided had the error never occurred. Curtailment of operation does not justify an estoppel when — by respondent’s own account — the expansion of its operation was achieved through unlawful access to governmental funds. And even if there will be a reduction below the service provided by respondent prior to its receipt of CETA funds, the record does not foreclose the possibility that the aggregate advantages to the community stemming from respondent’s use of the money have more than offset the actual hardship associated with now being required to restore these funds. Respondent cannot raise an estoppel without proving that it will be significantly worse off than if it had never obtained the CETA funds in question.

> H-i

Justice Holmes wrote: Men must turn square corners when they deal with the Government.” Rock Island, A. & L. R. Co. v. United States, 254 U. S. 141, 143 (1920). This observation has its greatest force when a private party seeks to spend the Government’s money. Protection of the public fisc requires that those who seek public funds act with scrupulous regard for the requirements of law; respondent could expect no less than to be held to the most demanding standards in its quest for public funds. This is consistent with the general rule that those who deal with the Government are expected to know the law and may not rely on the conduct of Government agents contrary to law.

As a participant in the Medicare program, respondent had a duty to familiarize itself with the legal requirements for cost reimbursement. Since it also had elected to receive reimbursement through Travelers, it also was acquainted with the nature of and limitations on the role of a fiscal intermediary. When the question arose concerning respondent’s CETA funds, respondent’s own action in consulting Travelers demonstrates the necessity for it to have obtained an interpretation of the applicable regulations; respondent indisputably knew that this was a doubtful question not clearly covered by existing policy statements. The fact that Travelers’ advice was erroneous is, in itself, insufficient to raise an estoppel, as is the fact that the Secretary had not anticipated this problem and made a clear resolution available to respondent. There is simply no requirement that the Government anticipate every problem that may arise in the administration of a complex program such as Medicare; neither can it be expected to ensure that every bit of informal advice given by its agents in the course of such a program will be sufficiently reliable to justify expenditure of sums of money as substantial as those spent by respondent. Nor was the advice given under circumstances that should have induced respondent’s reliance. As a recipient of public funds well acquainted with the role of a fiscal intermediary, respondent knew Travelers only acted as a conduit; it could not resolve policy questions. The relevant statute, regulations, and Reimbursement Manual, with which respondent should have been and was acquainted, made that perfectly clear. Yet respondent made no attempt to have the question resolved by the Secretary; it was satisfied with the policy judgment of a mere conduit.

The appropriateness of respondent’s reliance is further undermined because the advice it received from Travelers was oral. It is not merely the possibility of fraud that undermines our confidence in the reliability of official action that is not confirmed or evidenced by a written instrument. Written advice, like a written judicial opinion, requires its author to reflect about the nature of the advice that is given to the citizen, and subjects that advice to the possibility of review, criticism, and reexamination. The necessity for ensuring that governmental agents stay within the lawful scope of their authority, and that those who seek public funds act with scrupulous exactitude, argues strongly for the conclusion that an estoppel cannot be erected on the basis of the oral advice that underlay respondent’s cost reports. That is especially true when a complex program such as Medicare is involved, in which the need for written records is manifest.

In sum, the regulations governing the cost reimbursement provisions of Medicare should and did put respondent on ample notice of the care with which its cost reports must be prepared, and the care which would be taken to review them within the relevant 3-year period. Yet respondent prepared those reports on the basis of an oral policy judgment by an official who, it should have known, was not in the business of making policy. That is not the kind of reasonable reliance that would even give rise to an estoppel against a private party. It therefore cannot estop the Government.

Thus, assuming estoppel can ever be appropriately applied against the Government, it cannot be said that the detriment respondent faces is so severe or has been imposed in such an unfair way that petitioner ought to be estopped from enforcing the law in this case. Accordingly, the judgment of the Court of Appeals is reversed, and the case is remanded to that court for further proceedings consistent with this opinion.

It is so ordered.

Justice Rehnquist,

with whom The Chief Justice joins,

concurring in the judgment.

I entirely agree with the Court that there was no estoppel in favor of respondent by reason of the Government’s conduct in this case, because even a private party under like circumstances would not have been estopped. I write separately because I think the Court’s treatment of our decided cases in this area gives an inaccurate and misleading impression of what those cases have had to say as to the circumstances, if any, under which the Government may be estopped to enforce the laws.

Sixty-seven years ago, in Utah Power & Light Co. v. United States, 243 U. S. 389 (1917), private parties argued that they had acquired rights in federal lands, contrary to the law, because Government employees had acquiesced in their exercise of those rights. In that case the Court laid down the general principle governing claims of estoppel on behalf of private individuals against the Government:

“As a general rule, laches or neglect of duty on the part of officers of the Government is no defense to a suit by it to enforce a public right or protect a public interest. [Citations omitted.] And, if it be assumed that the rule is subject to exceptions, we find nothing in the cases in hand which fairly can be said to take them out of it as heretofore understood and applied in this court. A suit by the United States to enforce and maintain its policy respecting lands which it holds in trust for all the people stands upon a different plane in this and some other respects from the ordinary private suit to regain the title to real property or to remove a cloud from it. [Citation omitted.]” Id., at 409.

Since then we have applied that principle in a case where a private party relied on the misrepresentation of a Government agency as to the coverage of a crop insurance policy, a misrepresentation which the Court agreed would have es-topped a private insurance carrier. Federal Crop Insurance Corp. v. Merrill, 332 U. S. 380, 383-386 (1947). We have applied it in a case where a private party relied on a misrepresentation by a Government employee as to Social Security eligibility, a misrepresentation which resulted in the applicant’s losing 12 months of Social Security benefits. Schweiker v. Hansen, 450 U. S. 785 (1981) (per curiam). And we have applied it on at least three occasions to claims of estop-pel in connection with the enforcement of the immigration laws and the denial of citizenship because of the conduct of immigration officials. INS v. Miranda, 459 U. S. 14 (1982) (per curiam); INS v. Hibi, 414 U. S. 5 (1973) (per curiam); Montana v. Kennedy, 366 U. S. 308, 314-315 (1961). In none of these cases have we ever held the Government to be estopped by the representations or conduct of its agents. In INS v. Hibi, supra, at 8, we noted that it is still an open question whether, in some future case, “affirmative misconduct” on the part of the Government might be grounds for an estoppel. See Montana v. Kennedy, supra, at 314-315.

I agree with the Court that there is no need to decide in this case whether there are circumstances under which the Government may be estopped, but I think that the Court’s treatment of that question, ante, at 60-61, gives an impression of hospitality towards claims of estoppel against the Government which our decided cases simply do not warrant. In footnote 12, ante, at 60, the Court intimates that two of our decisions have allowed the Government to be estopped: United States v. Pennsylvania Industrial Chemical Corp., 411 U. S. 655 (1973), and Moser v. United States, 341 U. S. 41 (1951). But these cases are not traditional equitable es-toppel cases. Pennsylvania Industrial Chemical Corp. was a criminal prosecution, and we held that “to the extent that [Government regulations] deprived [the defendant] of fair warning as to what conduct the Government intended to make criminal, we think there can be no doubt that traditional notions of fairness inherent in our system of criminal justice prevent the Government from proceeding with the prosecution.” 411 U. S., at 674. And the Court’s rather cryptic opinion in Moser, holding that an alien who declined to serve in the Armed Forces was not barred from United States citizenship pursuant to a federal statute, expressly rejected any doctrine of estoppel, and rested on the absence of a knowing and intentional waiver of the right to citizenship. 341 U. S., at 47.

We do not write on a clean slate in this field, and our cases have left open the possibility of estoppel against the Government only in a rather narrow possible range of circumstances. Because I think the Court’s opinion, in its efforts to phrase new statements of the circumstances under which the Government may be estopped, casts doubt on these decided cases, I concur only in the judgment.

       Congress also authorized petitioner to adjust interim payments on account of previous overpayments or underpayments. § 1395g(a).

       “(a) Principle. Unrestricted grants, gifts, and income from endowments should not be deducted from operating costs in computing reimbursable cost. Grants, gifts, or endowment income designated by a donor for paying specific operating costs should be deducted from the particular operating cost or group of costs.
      “(b) Definitions — (1) Unrestricted grants, gifts, income from. endowment. Unrestricted grants, gifts, and income from endowments are funds, cash or otherwise, given to a provider without restriction by the donor as to their use.
      “(2) Designated or restricted grants, gifts, and income from endowments. Designated or restricted grants, gifts, and income from endowments are funds, cash or otherwise, which must be used only for the specific purpose designated by the donor. This does not refer to unrestricted grants, gifts, or income from endowments which have been restricted for a specific purpose by the provider.
      “(c) Application. (1) Unrestricted funds, cash or otherwise, are generally the property of the provider to be used in any manner its management deems appropriate and should not be deducted from operating costs. It would be inequitable to require providers to use the unrestricted funds to reduce the payments for care. The use of these funds is generally a means of recovering costs which are not otherwise recoverable.
      “(2) Donor-restricted funds which are designated for paying certain hospital operating expenses should apply and serve to reduce these costs or group of costs and benefit all patients who use services covered by the donation. If such costs are not reduced, the provider would secure reimbursement for the same expense twice; it would be reimbursed through the donor-restricted contributions as well as from patients and third-party payers including the title XVIII health insurance program.” 42 CFR § 405.423 (1982) (emphasis supplied).

        “Seed Money Grants. — Grants designated for the development of new health care agencies or for expansion of services of established agencies are generally referred to as ‘seed money’ grants. ‘Seed money’ grants are not deducted from costs in computing allowable costs. These grants are usually made to cover specific operating costs or group[s] of costs for services for a stated period of time. During this time, the provider will develop sufficient patient caseloads to enable continued self-sustaining operation with funds received from Medicare reimbursement as well as from funds received from other patients or other third-party payers.” Medicare Provider Reimbursement Manual, HIM-15, Pt. I, §612.2 (Aug. 1968), reproduced in 1 CCH, Medicare & Medicaid Guide ¶ 5461 (1983).

       Presumably because CETA program participants provided services to some individuals not eligible for Medicare benefits, the aggregate amount of CETA reimbursements was substantially larger than the portion for which Medicare reimbursement was claimed. The total amount of reimbursement respondent received in CETA funds was $16,555, $53,952, and $81,118 in 1975, 1976, and 1977, respectively.

       From its review of the record the Court of Appeals concluded that respondent had consulted Travelers and was advised that the CETA grants qualified as “seed money” on five separate occasions. However, the District Court made no finding as to the number of times that this advice was requested and received.

       The Board also found that the required written notice for 1976 had not been served on respondent, but noted that the Secretary still had time to comply with the notice requirement for that year. A timely notice for 1976 was thereafter served on respondent.

       The District Court also held that Travelers was not independently liable to respondent for its incorrect advice.

       See also Restatement (Second) of Agency §8B (1958).

       3 J. Pomeroy, Equity Jurisprudence § 805, p. 192 (S. Symons ed. 1941); see also id., §812.

       “The truth concerning these material facts must be unknown to the other party claiming the benefit of the estoppel, not only at the time of the conduct which amounts to a representation or concealment, but also at the time when that conduct is acted upon by him. If, at the time when he acted, such party had knowledge of the truth, or had the means by which with reasonable diligence he could acquire the knowledge so that it would be negligence on his part to remain ignorant by not using those means, he cannot claim to have been misled by relying upon the representation or concealment.” Id., §810, at 219 (footnote omitted).

       See, e. g., INS v. Hibi, 414 U. S. 5, 8 (1973) (per curiam); Federal Crop Insurance Corp. v. Merrill, 332 U. S. 380, 383 (1947).

       See INS v. Miranda, 459 U. S. 14, 19 (1982) (per curiam); Schweiker v. Hansen, 450 U. S. 785, 788 (1981) (per curiam); Montana v. Kennedy, 366 U. S. 308, 315 (1961). In fact, at least two of our cases seem to rest on the premise that when the Government acts in misleading ways, it may not enforce the law if to do so would harm a private party as a result of governmental deception. See United States v. Pennsylvania Industrial Chemical Corp., 411 U. S. 655, 670-675 (1973) (criminal defendant may assert as a defense that the Government led him to believe that its conduct was legal); Moser v. United States, 341 U. S. 41 (1951) (applicant cannot be deemed to waive right to citizenship on the basis of a form he signed when he was misled as to the effect signing would have on his rights). See also Kaiser Aetna v. United States, 444 U. S. 164, 178-180 (1979); Santobello v. New York, 404 U. S. 257 (1971); Branson v. Wirth, 17 Wall. 32, 42 (1873). This principle also underlies the doctrine that an administrative agency may not apply a new rule retroactively when to do so would unduly intrude upon reasonable reliance interests. See NLRB v. Bell Aerospace Co., 416 U. S. 267, 295 (1974); Atchison, T. & S. F. R. Co. v. Wichita Bd. of Trade, 412 U. S. 800, 807-808 (1973) (plurality opinion); SEC v. Chenery Corp., 332 U. S. 194, 203 (1947).

       See generally St. Regis Paper Co. v. United States, 368 U. S. 208, 229 (1961) (Black, J., dissenting) (“Our Government should not by picayunish haggling over the scope of its promise, permit one of its arms to do that which, by any fair construction, the Government has given its word that no arm will do. It is no less good morals and good law that the Government should turn square corners in dealing with the people than that the people should turn square corners in dealing with their government”); Federal Crop Insurance Corp. v. Merrill, 332 U. S., at 387-388 (Jackson, J., dissenting) (“It is very well to say that those who deal with the Government should turn square corners. But there is no reason why the square corners should constitute a one-way street”); Brandt v. Hickel, 427 F. 2d 53, 57 (CA9 1970) (“To say to these appellants, ‘The joke is on you. You shouldn’t have trusted us,’ is hardly worthy of our great government”); Menges v. Dentler, 33 Pa. 495, 500 (1859) (“Men naturally trust in their government, and ought to do so, and they ought not to suffer for it”). See also Giglio v. United States, 405 U. S. 150, 154-155 (1972).

       This case is, therefore, plainly distinguishable from Moser v. United States, 341 U. S. 41 (1951), in which the petitioner “was led to believe that he would not thereby lose his rights to citizenship.” Id., at 46.

       See Schweiker v. Hansen, 450 U. S., at 789 (per curiam).

       See United States v. Stewart, 311 U. S. 60, 70 (1940); Sutton v. United States, 256 U. S. 575 (1921); Pine River Logging Co. v. United States, 186 U. S. 279, 291 (1902); Hart v. United States, 95 U. S. 316 (1877). See also Automobile Club v. Commissioner, 353 U. S. 180 (1957).

       Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. The scope of this authority may be explicitly defined by Congress or be limited by delegated legislation, properly exercised through the rule-making power. And this is so even though, as here, the agent himself may have been unaware of the limitations upon his authority.” Federal Crop Insurance Corp. v. Merrill, 332 U. S., at 384.
      See United States v. California, 332 U. S. 19, 39-40 (1947); United States v. Stewart, 311 U. S., at 70; United States v. San Francisco, 310 U. S. 16, 31-32 (1940); Wilber National Bank v. United States, 294 U. S. 120, 123-124 (1935); Utah v. United States, 284 U. S. 534, 545-546 (1932); Jeems Bayou Fishing & Hunting Club v. United States, 260 U. S. 561, 564 (1923); Sutton v. United States, 256 U. S., at 579; Utah Power & Light Co. v. United States, 243 U. S. 389, 409 (1917); Pine River Logging Co. v. United States, 186 U. S., at 291; Hart v. United States, 95 U. S., at 318-319; Gibbons v. United States, 8 Wall. 269, 274 (1869); Lee v. Munroe, 7 Cranch 366 (1813).

       See Schweiker v. Hansen, 450 U. S., at 789-790 (per curiam); Montana v. Kennedy, 366 U. S. 308, 314-315 (1961).

       See INS v. Miranda, 459 U. S. 14 (1982) (per curiam); INS v. Hibi, 414 U. S. 5 (1973) (per curiam).

       See generally Schweiker v. Hansen, supra.

       Under the law of agency, a principal may be bound by the acts of an agent only if that agent acted with actual or apparent authority. Restatement (Second) of Agency §§ 145, 159 (1958). Travelers had neither with respect to the interpretation of the regulations in question. See also id., § 141, Comment b (principal may be estopped to deny lack of actual or apparent authority only when it negligently leads third parties to believe authority exists).

       The Court of Appeals believed that respondent did all it could have done since it was unable to deal with the Secretary directly. However, that belief, even if accurate, would not make respondent’s reliance on Travelers’ policy judgment any more reasonable. Moreover, given the role of Travelers as a conduit for information, it is far from clear that had respondent specifically requested that Travelers pass on its question to the Department, Travelers would not have been under a duty to do so. Even if there were no such duty, there is nothing in the record to indicate that Travelers would have been unwilling to honor such a request.


source: Caselaw Access Project

author: Chief Justice Burger Justice Powell,

license: Public Domain

text:
    HISHON v. KING & SPALDING
    No. 82-940.
    Argued October 31, 1983
    Decided May 22, 1984

      Emmet J. Bondurant argued the cause and filed a brief for petitioner.

      Deputy Solicitor General Bator argued the cause for the United States as amicus curiae urging reversal. With him on the brief for the United States et al. were Solicitor General Lee, Assistant Attorney General Reynolds, David A. Strauss, Brian K. Landsberg, James W. Clute, and Philip B. Sklover.

      Charles Morgan, Jr., argued the cause for respondent. With him on the brief were J. Richard Cohen, Steven E. Vagle, Hamilton Lokey, and Gerald F. Handley.

      Briefs of amici curiae urging reversal were filed for the American Association of University Women et al. by Judith I. Avner and Anne E. Simon; for the American Civil Liberties Union by Samuel Estreicher,

        Burt Neubome, Isabelle Katz Pinzler, E. Richard Larson, Charles S. Sims, and Mary L. Heen; for the Anti-Defamation League of B’nai B’rith et al. by Justin J. Finger, Meyer Eisenberg, Jeffrey P. Sinensky, Leslie K. Shedlin, and Nathan Z. Dershowitz; for California Women Lawyers by Elizabeth S. Salveson; for the Dallas Association of Black Women Attorneys et al. by Neil H. Cogan; for the NAACP Legal Defense and Educational Fund, Inc., by Jack Greenberg, Charles S. Ralston, Gail J. Wright, and Elizabeth Bartholet; for the Women’s Bar Association of Illinois et al. by Paddy Harris McNamara, Susan N. Sekuler, and Jacqueline S. Lustig; for the Women’s Bar Association of Massachusetts by Leah Sprague Crothers; and for Robert Abrams et al. by Paulette M. Caldwell, Lawrence S. Robbins, and Barbara S. Schulman.

        Joseph D. Alviani filed a brief for the New England Legal Foundation as amicus curiae urging affirmance.

   Chief Justice Burger

delivered the opinion of the Court.

We granted certiorari to determine whether the District Court properly dismissed a Title VII complaint alleging that a law partnership discriminated against petitioner, a woman lawyer employed as an associate, when it failed to invite her to become a partner.

I

A

In 1972 petitioner Elizabeth Anderson Hishon accepted a position as an associate with respondent, a large Atlanta law firm established as a general partnership. When this suit was filed in 1980, the firm had more than 50 partners and employed approximately 50 attorneys as associates. Up to that time, no woman had ever served as a partner at the firm.

Petitioner alleges that the prospect of partnership was an important factor in her initial decision to accept employment with respondent. She alleges that respondent used the possibility of ultimate partnership as a recruiting device to induce petitioner and other young lawyers to become associates at the firm. According to the complaint, respondent represented that advancement to partnership after five or six years was “a matter of course” for associates “who receive[d] satisfactory evaluations” and that associates were promoted to partnership “on a fair and equal basis.” Petitioner alleges that she relied on these representations when she accepted employment with respondent. The complaint further alleges that respondent’s promise to consider her on a “fair and equal basis” created a binding employment contract.

In May 1978 the partnership considered and rejected Hishon for admission to the partnership; one year later, the partners again declined to invite her to become a partner. Once an associate is passed over for partnership at respondent’s firm, the associate is notified to begin seeking employment elsewhere. Petitioner’s employment as an associate terminated on December 31, 1979.

B

Hishon filed a charge with the Equal Employment Opportunity Commission on November 19, 1979, claiming that respondent had discriminated against her on the basis of her sex in violation of Title VII of the Civil Rights Act of 1964, 78 Stat. 241, as amended, 42 U. S. C. §2000e et seq. Ten days later the Commission issued a notice of right to sue, and on February 27, 1980, Hishon brought this action in the United States District Court for the Northern District of Georgia. She sought declaratory and injunctive relief, backpay, and compensatory damages “in lieu of reinstatement and promotion to partnership.” This, of course, negates any claim for specific performance of the contract alleged.

The District Court dismissed the complaint on the ground that Title VII was inapplicable to the selection of partners by a partnership. 24 FEP Cases 1303 (1980). A divided panel of the United States Court of Appeals for the Eleventh Circuit affirmed. 678 F. 2d 1022 (1982). We granted certio-rari, 459 U. S. 1169 (1983), and we reverse.

At this stage of the litigation, we must accept petitioners allegations as true. A court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Conley v. Gibson, 355 U. S. 41, 45-46 (1957). The issue before us is whether petitioner’s allegations state a claim under Title VII, the relevant portion of which provides as follows:

“(a) It shall be an unlawful employment practice for an employer—
“(1) to fail or refuse to hire or to discharge any individual, or otherwise to discriminate against any individual with respect to his compensation, terms, conditions, or privileges of employment, because of such individual’s race, color, religion, sex, or national origin.” 42 U. S. C. §2000e-2(a) (emphasis added).

A

Petitioner alleges that respondent is an “employer” to whom Title VII is addressed. She then asserts that consideration for partnership was one of the “terms, conditions, or privileges of employment” as an associate with respondent. See §2000e-2(a)(l). If this is correct, respondent could not base an adverse partnership decision on “race, color, religion, sex, or national origin.”

Once a contractual relationship of employment is established, the provisions of Title VII attach and govern certain aspects of that relationship. In the context of Title VII, the contract of employment may be written or oral, formal or informal; an informal contract of employment may arise by the simple act of handing a job applicant a shovel and providing a workplace. The contractual relationship of employment triggers the provision of Title VII governing “terms, conditions, or privileges of employment.” Title VII in turn forbids discrimination on the basis of “race, color, religion, sex, or national origin.”

Because the underlying employment relationship is contractual, it follows that the “terms, conditions, or privileges of employment” clearly include benefits that are part of an employment contract. Here, petitioner in essence alleges that respondent made a contract to consider her for partnership. Indeed, this promise was allegedly a key contractual provision which induced her to accept employment. If the evidence at trial establishes that the parties contracted to have petitioner considered for partnership, that promise clearly was a term,- condition, or privilege of her employment. Title VII would then bind respondent to consider petitioner for partnership as the statute provides, i. e., without regard to petitioner’s sex. The contract she alleges would lead to the same result.

Petitioner’s claim that a contract was made, however, is not the only allegation that would qualify respondent’s consideration of petitioner for partnership as a term, condition, or privilege of employment. An employer may provide its employees with many benefits that it is under no obligation to furnish by any express or implied contract. Such a benefit, though not a contractual right of employment, may qualify as a “privileg[e]” of employment under Title VII. A benefit that is part and parcel of the employment relationship may not be doled out in a discriminatory fashion, even if the employer would be free under the employment contract simply not to provide the benefit at all. Those benefits that comprise the “incidents of employment,” S. Rep. No. 867, 88th Cong., 2d Sess., 11 (1964), or that form “an aspect of the relationship between the employer and employees,” Chemical & Alkali Workers v. Pittsburgh Plate Glass Co., 404 U. S. 157, 178 (1971), may not be afforded in a manner contrary to Title VII.

Several allegations in petitioner’s complaint would support the conclusion that the opportunity to become a partner was part and parcel of an associate’s status as an employee at respondent’s firm, independent of any allegation that such an opportunity was included in associates’ employment contracts. Petitioner alleges that respondent’s associates could regularly expect to be considered for partnership at the end of their “apprenticeships,” and it appears that lawyers outside the firm were not routinely so considered. Thus, the benefit of partnership consideration was allegedly linked directly with an associate’s status as an employee, and this linkage was far more than coincidental: petitioner alleges that respondent explicitly used the prospect of ultimate partnership to induce young lawyers to join the firm. Indeed, the importance of the partnership decision to a lawyer’s status as an associate is underscored by the allegation that associates’ employment is terminated if they are not elected to become partners. These allegations, if proved at trial, would suffice to show that partnership consideration was a term, condition, or privilege of an associate’s employment at respondent’s firm, and accordingly that partnership consideration must be without regard to sex.

B

Respondent contends that advancement to partnership may never qualify as a term, condition, or privilege of employment for purposes of Title VII. First, respondent asserts that elevation to partnership entails a change in status from an “employee” to an “employer.” However, even if respondent is correct that a partnership invitation is not itself an offer of employment, Title VII would nonetheless apply and preclude discrimination on the basis of sex. The benefit a plaintiff is denied need not be employment to fall within Title VII’s protection; it need only be a term, condition, or privilege of employment. It is also of no consequence that employment as an associate necessarily ends when an associate becomes a partner. A benefit need not accrue before a person’s employment is completed to be a term, condition, or privilege of that employment relationship. Pension benefits, for example, qualify as terms, conditions, or privileges of employment even though they are received only after employment terminates. Arizona Governing Committee for Tax Deferred Annuity & Deferred Compensation Plans v. Norris, 463 U. S. 1073, 1079 (1983) (opinion of MARSHALL, J.). Accordingly, nothing in the change in status that advancement to partnership might entail means that partnership consideration falls outside the terms of the statute. See Lucido v. Cravath, Swaine & Moore, 425 F. Supp. 123, 128-129 (SDNY 1977).

Second, respondent argues that Title VII categorically exempts partnership decisions from scrutiny. However, respondent points to nothing in the statute or the legislative history that would support such a per se exemption. When Congress wanted to grant an employer complete immunity, it expressly did so.

Third, respondent argues that application of Title VII in this case would infringe constitutional rights of expression or association. Although we have recognized that the activities of lawyers may make a “distinctive contribution.... to the ideas and beliefs of our society,” NAACP v. Button, 371 U. S. 415, 431 (1963), respondent has not shown how its ability to fulfill such a function would be inhibited by a requirement that it consider petitioner for partnership on her merits. Moreover, as we have held in another context, “[invidious private discrimination may be characterized as a form of exercising freedom of association protected by the First Amendment, but it has never been accorded affirmative constitutional protections.” Norwood, v. Harrison, 413 U. S. 455, 470 (1973). There is no constitutional right, for example, to discriminate in the selection of who may attend a private school or join a labor union. Runyon v. McCrary, 427 U. S. 160 (1976); Railway Mail Assn. v. Corsi, 326 U. S. 88, 93-94 (1945).

Ill

We conclude that petitioner’s complaint states a claim cognizable under Title VII. Petitioner therefore is entitled to her day in court to prove her allegations. The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice Powell,

concurring.

I join the Court’s opinion holding that petitioner’s complaint alleges a violation of Title VII and that the motion to dismiss should not have been granted. Petitioner’s complaint avers that the law firm violated its promise that she would be considered for partnership on a “fair and equal basis” within the time span that associates generally are so considered. Petitioner is entitled to the opportunity to prove these averments.

I write to make clear my understanding that the Court’s opinion should not be read as extending Title VII to the management of a law firm by its partners. The reasoning of the Court’s opinion does not require that the relationship among partners be characterized as an “employment” relationship to which Title VII would apply. The relationship among law partners differs markedly from that between employer and employee — including that between the partnership and its associates. The judgmental and sensitive decisions that must be made among the partners embrace a wide range of subjects. The essence of the law partnership is the common conduct of a shared enterprise. The relationship among law partners contemplates that decisions important to the partnership normally will be made by common agreement, see, e. g., Memorandum of Agreement, King & Spalding, App. 153-164 (respondent’s partnership agreement), or consent among the partners.

Respondent contends that for these reasons application of Title VII to the decision whether to admit petitioner to the firm implicates the constitutional right to association. But here it is alleged that respondent as an employer is obligated by contract to consider petitioner for partnership on equal terms without regard to sex. I agree that enforcement of this obligation, voluntarily assumed, would impair no right of association.

In admission decisions made by law firms, it is now widely recognized — as it should be — that in fact neither race nor sex is relevant. The qualities of mind, capacity to reason logically, ability to work under pressure, leadership, and the like are unrelated to race or sex. This is demonstrated by the success of women and minorities in law schools, in the practice of law, on the bench, and in positions of community, state, and national leadership. Law firms — and, of course, society — are the better for these changes.

       The parties dispute whether the partnership actually reconsidered the 1978 decision at the 1979 meeting. Respondent claims it voted not to reconsider the question and that Hishon therefore was required to file her claim with the Equal Employment Opportunity Commission within 180 days of the May 1978 meeting, not the meeting one year later, see 42 U. S. C. § 2000e-5(e). The District Court’s disposition of the case made it unnecessary to decide that question, and we do not reach it.

       The District Court dismissed under Federal Rule of Civil Procedure 12(b)(1) on the ground that it lacked subject-matter jurisdiction over petitioner’s claim. Although limited discovery previously had taken place concerning the manner in which respondent was organized, the court did not find any “jurisdictional facts” in dispute. See Thomson v. Gaskill, 315 U. S. 442, 446 (1942). Its reasoning makes clear that it dismissed petitioner’s complaint on the ground that her allegations did not state a claim cognizable under Title VII. Our disposition makes it unnecessary to consider the wisdom of the District Court’s invocation of Rule 12(b)(1), as opposed to Rule 12(b)(6).

       The statute defines an “employer” as a “person engaged in an industry affecting commerce who has fifteen or more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year,” § 2000e(b), and a “person” is explicitly defined to include “partnerships,” §2000e(a). The complaint alleges that respondent’s partnership satisfies these requirements. App. 6.

       Petitioner has raised other theories of Title VII liability which, in light of our disposition, need not be addressed.

       Title VII also may be relevant in the absence of an existing employment relationship, as when an employer refuses to hire someone. See § 2000e-2(a)(l). However, discrimination in that circumstance does not concern the “terms, conditions, or privileges of employment,” which is the focus of the present case.

       Petitioner alleges not only that respondent promised to consider her for partnership, but also that it promised to consider her on a “fair and equal basis.” This latter promise is not necessary to petitioner’s Title VII claim. Even if the employment contract did not afford a basis for an implied condition that the ultimate decision would be fairly made on the merits, Title VII itself would impose such a requirement. If the promised consideration for partnership is a term, condition, or privilege of employment, then the partnership decision must be without regard to “race, color, religion, sex, or national origin.”

       Senate Report No. 867 concerned S. 1937, which the Senate postponed indefinitely after it amended a House version of what ultimately became the Civil Rights Act of 1964. See 110 Cong. Rec. 14602 (1964). The Report is relevant here because S. 1937 contained language similar to that ultimately found in the Civil Rights Act. It guaranteed “equal employment opportunity,” which was defined to “include all the compensation, terms, conditions, and privileges of employment.” S. Rep. No. 867, 88th Cong., 2d Sess., 24 (1964).

         Chemical & Alkali Workers pertains to §8(d) of the National Labor Relations Act (NLRA), which describes the obligation of employers and unions to meet and confer regarding “wages, hours, and other terms and conditions of employment.” 61 Stat. 142, as amended, 29 U. S. C. § 158(d). The meaning of this analogous language sheds light on the Title VII provision at issue here. We have drawn analogies to the NLRA in other Title VII contexts, see Franks v. Bowman Transportation Co., 424 U. S. 747, 768-770 (1976), and have noted that certain sections of Title VII were expressly patterned after the NLRA, see Albemarle Paper Co. v. Moody, 422 U. S. 405, 419 (1975).

       Respondent’s own submissions indicate that most of respondent’s partners in fact were selected from the ranks of associates who had spent their entire prepartnership legal careers (excluding judicial clerkships) with the firm. See App. 45.

       The only legislative history respondent offers to support its position is Senator Cotton’s defense of an unsuccessful amendment to limit Title VII to businesses with 100 or more employees. In this connection the Senator stated:
      “[W]hen a small businessman who employs 30 or 25 or 26 persons selects an employee, he comes very close to selecting a partner; and when a businessman selects a partner, he comes dangerously close to the situation he faces when he selects a wife.” 110 Cong. Rec. 13085 (1964); accord, 118 Cong. Rec. 1524, 2391 (1972).
      Because Senator Cotton’s amendment failed, it is unclear to what extent Congress shared his concerns about selecting partners. In any event, his views hardly conflict with our narrow holding today: that in appropriate circumstances partnership consideration may qualify as a term, condition, or privilege of a person’s employment with an employer large enough to be covered by Title VII.

       For example, Congress expressly exempted Indian tribes and certain agencies of the District of Columbia, 42 U. S. C. § 2000e(b)(l), small businesses and bona fide private membership clubs, § 2000e(b)(2), and certain employees of religious organizations, §2000e-l. Congress initially exempted certain employees of educational institutions, § 702, 78 Stat. 255, but later revoked that exemption, Equal Employment Opportunity Act of 1972, §3, 86 Stat. 103.

       Law firms normally require a period of associateship as a prerequisite to being eligible to “make” partner. This need not be an inflexible period, as firms may vary from the norm and admit to partnership earlier than, or subsequent to, the customary period of service. Also, as the complaint recognizes, many firms make annual evaluations of the performances of associates, and usually are free to terminate employment on the basis of these evaluations.

       Of course, an employer may not evade the strictures of Title VII simply by labeling its employees as “partners.” Law partnerships usually have many of the characteristics that I describe generally here.

       These decisions concern such matters as participation in profits and other types of compensation; work assignments; approval of commitments in bar association, civic, or political activities; questions of billing; accept-anee of new clients; questions of conflicts of interest; retirement programs; and expansion policies. Such decisions may affect each partner of the firm. Divisions of partnership profits, unlike shareholders’ rights to dividends, involve judgments as to each partner’s contribution to the reputation and success of the firm. This is true whether the partner’s participation in profits is measured in terms of points or percentages, combinations of salaries and points, salaries and bonuses, and possibly in other ways.

       The Court’s opinion properly reminds us that “invidious private discrimination . . . has never been accorded affirmative constitutional protections.” Ante, at 78. This is not to say, however, that enforcement of laws that ban discrimination will always be without cost to other values, including constitutional rights. Such laws may impede the exercise of personal judgment in choosing one’s associates or colleagues. See generally Fallon, To Each According to His Ability, From None According to His Race: The Concept of Merit in the Law of Antidiscrimination, 60 Boston Univ. L. Rev. 815, 844-860 (1980). Impediments to the exercise of one’s right to choose one’s associates can violate the right of association protected by the First and Fourteenth Amendments. Cf. NAACP v. Button, 371 U. S. 415 (1963); NAACP v. Alabama ex rel. Patterson, 357 U. S. 449 (1958).
      With respect to laws that prevent discrimination, much depends upon the standards by which the courts examine private decisions that are an exercise of the right of association. For example, the Courts of Appeals generally have acknowledged that respect for academic freedom requires some deference to the judgment of schools and universities as to the qualifications of professors, particularly those considered for tenured positions. Lieberman v. Gant, 630 F. 2d 60, 67-68 (CA2 1980); Kunda v. Muhlenberg

        College, 621 F. 2d 532, 547-548 (CA3 1980). Cf. University of California Regents v. Bakke, 438 U. S. 265, 311-315 (1978) (opinion of JUSTICE Powell). The present ease, before us on a motion to dismiss for lack of subject-matter jurisdiction, does not present such an issue.