Donahue v. United States of America
870 F. Supp. 2d 97
D.D.C.2012Background
- FTCA suit against the United States for SEC investigatory conduct related to Madoff; plaintiffs allege negligent investigations over 1992–2008 caused $2M+ in losses.
- Defendant seeks dismissal under FTCA discretionary function exception, arguing SEC investigatory acts are discretionary policy decisions immune from liability.
- Court previously granted dismissal March 26, 2012; opinion explains why FTCA jurisdiction does not lie.
- Court considers OIG reports and SEC Enforcement Manual, which are attached to the complaint and used to analyze whether acts were discretionary.
- Plaintiffs argue SEC staff violated mandatory duties or non-discretionary standards, but court finds no identified non-discretionary duties or policy-free conduct.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether discretionary function exception bars FTCA liability | Donahue argues SEC investigations lacked policy judgment and were non-discretionary. | U.S. maintains investigations were discretionary acts protected by § 2680(a). | Yes; discretionary function exception bars claims. |
| Whether SEC investigatory acts were mandatory and non-discretionary | Plaintiffs claim some acts violated mandatory duties and thus were non-discretionary. | Investigations involve policy judgments; no mandatory duties identified. | No; plaintiffs failed to show non-discretionary duties. |
| Whether alleged violations of SEC policies or professional standards remove discretion | Plaintiffs point to internal policies and professional standards as mandatory. | Policies were not shown to be mandatory; judgments remained discretionary. | No; discretionary analysis applies. |
| Whether failure to initiate proceedings or warning can be basis for FTCA liability | Negligent investigations indirectly caused harm without prosecutorial action. | Prosecution decisions are discretionary; negligence of investigation tied to protected action. | No; cannot anchor FTCA liability. |
Key Cases Cited
- United States v. Gaubert, 499 U.S. 315 (1991) (two-part test: nature of act and policy considerations; discretion shielded)
- Berkovitz v. United States, 486 U.S. 536 (1988) (mandatory vs. discretionary conduct; policy-based discretion)
- Sloan v. U.S. Dep’t of Housing and Urban Dev., 236 F.3d 756 (D.C. Cir. 2001) (negligent investigation under HUD; discretion preserved)
- Dichter-Mad Family Partners, LLP v. United States, 707 F. Supp. 2d 1016 (C.D. Cal. 2010) (SEC investigation discretion and FTCA applicability)
- Molchatsky v. United States, 778 F. Supp.2d 421 (S.D.N.Y. 2011) (SEC’s investigatory powers are discretionary)
- Ignatiev v. United States, 238 F.3d 464 (D.C. Cir. 2001) (jurisdictional discovery on mandatory duties; limits)
- S.E.C. v. Better Life Club of Am., Inc., 995 F. Supp. 167 (D.D.C. 1998) (investigations protected; discretionary)
- Bd. of Trade of City of Chicago v. S.E.C., 883 F.2d 525 (7th Cir. 1989) (prosecution discretion under securities acts)
- United States v. Varig Airlines, 467 U.S. 797 (1984) (policy-based discretion; focus on nature of choice)