Cohen v. United States
722 F.3d 168
3rd Cir.2013Background
- Appellants were customers of Bernard L. Madoff Investment Securities LLC during the Madoff Ponzi scheme.
- Appellants sued the United States under the FTCA alleging SEC failures to timely uncover and terminate the scheme.
- The District of New Jersey dismissed for lack of subject matter jurisdiction based on the discretionary function exception (DFE).
- Appellants sought jurisdictional discovery and leave to amend; the district court denied both.
- The Third Circuit affirmed, holding the DFE prevents FTCA jurisdiction over the SEC’s investigative decisions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the FTCA discretionary function exception bars jurisdiction. | Baer asserts no discretionary analysis shield. | U.S. contends DFE bars jurisdiction over SEC investigations. | DFE applies; no FTCA jurisdiction. |
| Whether alleged mandatory procedures defeat discretion. | Appellants identify mandatory SEC procedures as non-discretionary. | Procedures are discretionary; no mandatory duties breached. | Appellants failed to show mandatory directives; discretion remains. |
| Whether SEC regulations prohibiting preferential treatment negate DFE. | Regulations create mandatory duties for non-preferential treatment. | Regulations are intertwined with investigative discretion and do not waive DFE. | Discretion preserved; DFE applies. |
| Whether misprision of felony theory creates FTCA jurisdiction. | SEC had a duty to disclose Madoff fraud; misprision applies. | SEC lacked full knowledge of the fraud, defeating misprision. | Misprision elements not satisfied; no jurisdiction. |
| Whether denial of jurisdictional discovery and amendment was appropriate. | Discovery would reveal mandatory policies overcoming DFE; amendment would add claims. | No discovery or amendment would overcome DFE. | District court did not abuse discretion; appeals denied. |
Key Cases Cited
- Merando v. United States, 517 F.3d 160 (3d Cir. 2008) (burden-shifting framework for FTCA discretionary function)
- United States v. Gaubert, 499 U.S. 315 (Sup. Ct. 1991) (strong presumption of policy analysis in discretionary acts)
- Berkovitz v. United States, 486 U.S. 531 (1988) (discretionary function test requires choice and public-policy shielding)
- United States v. Varig Airlines, 467 U.S. 797 (1984) (DFE boundary between policy decisions and tort liability)
- Gen. Pub. Utils. Corp. v. United States, 745 F.2d 239 (3d Cir. 1984) (scope and timing of investigations are discretionary)
- Pooler v. United States, 787 F.2d 868 (3d Cir. 1986) (judicial review of investigative quality not permitted under DFE)
- Millbrook v. United States, 133 S. Ct. 1441 (2013) (supreme court on discretionary function scope (investigation context))