Rene Alvarez v. United States
862 F.3d 1297
11th Cir.2017Background
- Kenneth W. McLeod ran the FEBG Bond Fund and solicited federal employees at government-sponsored retirement seminars; many invested and later learned the fund was a Ponzi scheme.
- McLeod admitted the scheme in 2010 and died by suicide; investors sued the United States under the Federal Tort Claims Act (FTCA).
- Plaintiffs amended to allege McLeod was a federal employee (for FTCA purposes) and asserted counts including negligent sale of unregistered securities, aiding and abetting, negligent supervision, breach of fiduciary duty, and negligent infliction of emotional distress.
- The Government moved to dismiss for lack of subject-matter jurisdiction invoking the FTCA’s misrepresentation (28 U.S.C. § 2680(h)) and discretionary-function exceptions.
- The district court dismissed, holding plaintiffs’ claims “arise out of” misrepresentations (and omissions) by McLeod and agency employees and are therefore barred by § 2680(h).
- On appeal the Eleventh Circuit affirmed: the essence of plaintiffs’ claims is misrepresentation/negligent misrepresentation and Sheridan does not save the claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FTCA waiver applies or § 2680(h) (misrepresentation) bars claims | McLeod’s and agency employees’ conduct created independent duties (e.g., negligent supervision, breach of ethics) distinct from misrepresentation | Plaintiffs’ injuries flow from misrepresentations/omissions; claims are essentially misrepresentation and thus excepted | Held: § 2680(h) bars all claims—the essence is misrepresentation or negligent misrepresentation |
| Whether negligence-per-se claim for selling unregistered securities is actionable under FTCA | Unregistered-sale theory is an independent basis for negligence per se under state law | Even if securities were unregistered, plaintiffs’ injuries resulted from fraudulent misrepresentations, not registration status | Held: Claim arises from misrepresentation and is barred (or, if McLeod not a gov’t employee, not actionable under FTCA) |
| Whether agency employees’ alleged aiding/endorsement/supervision failures avoid § 2680(h) because they are operational duties | Agency breaches (vetting, supervision, permitting solicitations) are antecedent, operational negligence independent of misrepresentations | Those breaches are communications/non-communications about McLeod’s legitimacy—thus fall within misrepresentation exception | Held: Agency conduct was communication/non-communication about McLeod’s legitimacy; claims covered by § 2680(h) |
| Whether Sheridan v. United States permits recovery despite an intentional-tort exception when government negligence antecedent to the intentional tort exists | Sheridan allows suits where independent government negligence caused the injury (analogous to corpsmen failing to control a dangerous person) | Here government liability is tied to McLeod’s presented government role; plaintiffs’ theory depends on misrepresentations so Sheridan is inapplicable | Held: Sheridan does not save plaintiffs—government liability is not independent of McLeod’s employment/representations; claims remain barred |
Key Cases Cited
- Zelaya v. United States, 781 F.3d 1315 (11th Cir. 2015) (misrepresentation exception bars FTCA claims grounded in government communications or non-communications of financial information)
- Sheridan v. United States, 487 U.S. 392 (1988) (FTCA intentional-tort exception does not bar claims based on independent government negligence antecedent to an intentional tort)
- Block v. Neal, 460 U.S. 289 (1983) (misrepresentation exception applies to losses caused by reliance on governmental misstatements; distinguishes negligent miscommunication from independent operational duties)
- United States v. Neustadt, 366 U.S. 696 (1961) (characterizes negligent misrepresentation as failure to use due care in obtaining/communicating information)
- JBP Acquisitions, LP v. United States ex rel. FDIC, 224 F.3d 1260 (11th Cir. 2000) (substance/essence of claim controls; artful pleading cannot evade § 2680(h))