77 N.Y.2d 126 (1990)

Estoppel cannot be invoked against a governmental agency to prevent it from discharging its statutory duties, except in the rarest of cases, and ratification of an agent’s acts requires knowledge of material facts concerning the allegedly binding transaction.

Summary

New York State Medical Transporters Association, Inc. sought to compel the Commissioner of the Department of Social Services (DSS) to process claims for Medicaid transportation services without prior approval, arguing the agency had established a practice of “retroactive prior approval.” The Court of Appeals held that estoppel could not be invoked against a government agency to prevent it from discharging its statutory duties and that the DSS had not ratified its agent’s actions because it lacked knowledge of the material facts. This ruling upholds the statutory requirement of prior approval for Medicaid transportation services, reinforcing the principle that those dealing with the government are expected to know the law and comply with its requirements.

Facts

The New York State Medical Transporters Association, Inc. provided nonemergency transportation services to Medicaid recipients. New York law requires prior approval from DSS for such transportation, except in emergencies. Due to a high volume of requests, DSS’s fiscal agent adopted a practice of granting “retroactive prior approvals” after services were rendered. In May 1987, DSS sent a letter to transportation providers reiterating the prior approval requirement and limiting retroactive requests to within 30 days of service.

Procedural History

The Association sought to compel DSS to reinstate the retroactive prior approval practice and process claims lacking prior approval. The Supreme Court granted the petition, finding DSS had ratified the irregular procedure. The Appellate Division reversed, concluding there was no basis for estoppel or ratification. The Court of Appeals affirmed the Appellate Division’s decision, dismissing the petition.

Issue(s)

1. Whether estoppel can be invoked against a governmental agency to compel the processing of Medicaid claims lacking prior approval, based on the agency’s prior informal practice of granting retroactive approvals.
2. Whether DSS ratified its agent’s practice of granting retroactive prior approvals by failing to end the practice within a reasonable time and retaining the benefits of the transportation services.

Holding

1. No, because estoppel cannot be invoked against a governmental agency to prevent it from discharging its statutory duties, except in the rarest of cases.
2. No, because ratification of an agent’s acts requires knowledge of material facts concerning the allegedly binding transaction, which was not demonstrated here.

Court’s Reasoning

The Court of Appeals emphasized the principle that estoppel against a governmental agency is disfavored, especially when it could result in public fraud. It found that the transporters were aware of the prior approval requirement and could not claim “manifest injustice” due to their failure to comply with the law. Quoting Rock Is., Ark. & La. R. R. Co. v United States, 254 US 141, 143, the court stated, “Men must turn square corners when they deal with the Government.”

Regarding ratification, the court found no evidence that DSS knew of and intentionally condoned the agent’s practice of retroactive prior approvals. Moreover, the court held that DSS could not ratify an act that it itself could not have authorized. Since the statute requires prior approval, DSS could not ratify its agent’s act of excusing compliance with that requirement. The court distinguished between administering a statute humanely and allowing service providers to circumvent measures designed to prevent fraud on the public. The dissent argued that DSS had acquiesced in the retroactive approval policy and that the provision of transportation services inured to DSS’s benefit by fulfilling its statutory obligation. The majority rejected this, holding that the statutory requirement of prior approval must be enforced to prevent potential collusion and fraud, underscoring the importance of adhering to legal requirements when dealing with government agencies.