Esrey v. United States
707 F. App'x 749
| 2d Cir. | 2018Background
- Plaintiffs William Esrey and Ronald LeMay sued the United States under the Federal Tort Claims Act (FTCA), alleging the IRS aided and abetted Ernst & Young (EY) in breaching fiduciary duties by concealing that EY was under criminal investigation and conflicted in representing plaintiffs in an IRS civil audit.
- Plaintiffs claimed they were injured because knowledge of the investigation would have allowed them to push their employer to fire EY and to pursue arbitration against EY more effectively and cheaply.
- The district court dismissed the complaint for lack of subject-matter jurisdiction under the FTCA’s misrepresentation exception, 28 U.S.C. § 2680(h).
- On appeal, the Second Circuit reviewed the dismissal de novo and considered whether plaintiffs’ theory was barred by the FTCA misrepresentation exception.
- The court focused on the substance of the claim (non-disclosure/misrepresentation), not the label (aiding and abetting fiduciary breach), to determine jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FTCA waives sovereign immunity for the alleged conduct | Esrey/LeMay: claim is for aiding and abetting fiduciary breach (tort distinct from misrepresentation) | U.S.: claim arises from concealment/misrepresentation and thus barred by § 2680(h) | Held: barred — claim arises from misrepresentation/non-disclosure; no jurisdiction |
| Whether alleged removal of "penalty" from IRS press release is non-misrepresentational conduct | Plaintiffs: this was an independent, non-concealment act actionable apart from misrepresentation | U.S.: altering release was a communication about IRS’s stance — a misrepresentation | Held: removing "penalty" was a communication and falls within § 2680(h) |
| Whether IRS’s failure to prohibit EY from representing plaintiffs is a distinct tortious act | Plaintiffs: failure to prohibit representation is not a communicative act and is actionable | U.S.: failure facilitated concealment and thus is a communicative omission covered by § 2680(h) | Held: failure to prohibit concerned information communicated/withheld and is barred |
| Whether plaintiffs can plead around § 2680(h) by labeling claim as aiding/abetting | Plaintiffs: label disguises real injury as breach of fiduciary duty | U.S.: courts must look to substance over form; misrepresentation exception applies | Held: substance controls; plaintiffs cannot evade § 2680(h) by artful pleading |
Key Cases Cited
- Ingham v. Eastern Air Lines, 373 F.2d 227 (2d Cir. 1967) (misrepresentation includes failure to provide information)
- Block v. Neal, 460 U.S. 289 (1983) (§ 2680(h) bars negligent and intentional misrepresentation claims)
- Dorking Genetics v. United States, 76 F.3d 1261 (2d Cir. 1996) (plaintiff may not evade § 2680(h) by artful pleading)
- Lambertson v. United States, 528 F.2d 441 (2d Cir. 1976) (court must examine substance of claim to determine § 2680(h) applicability)
- Kosak v. United States, 465 U.S. 848 (1984) (FTCA waiver of sovereign immunity is subject to exceptions)
- Makarova v. United States, 201 F.3d 110 (2d Cir. 2000) (standard for de novo appellate review of FTCA jurisdictional dismissal)