ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS FOR LACK OF JURISDICTION [6, 7]
I. INTRODUCTION
A. BACKGROUND
Plaintiffs were investors in Bernard Ma-doffs Ponzi scheme. 1 Plaintiffs are bringing a Federal Tort Claims Act (“FTCA”) action against the Securities and Exchange Commission (“SEC”) and the United States (“Government” or “Defendant”). Plaintiffs assert that the SEC “owes a duty of reasonable due care to all members of the general public including all investors in U.S. financial markets who are foresee-ably endangered by its conduct.” (Compl. ¶ 168.) Plaintiffs also assert that the SEC’s negligent acts and omissions “caused Madoffs scheme to continue, perpetuate, and expand,” and that the SEC “fail[ed] to terminate Madoffs Ponzi scheme despite its multiple opportunities to do so.” (Compl. ¶ 2; see also Compl. ¶ 164.) Plaintiffs further assert that “Plaintiffs here were among those victimized by Madoff. Plaintiffs made their investments in reliance on Madoffs reputation, clean regulatory record, and the SEC’s implied stamp of approval.” (Compl. ¶ 8.) Because of the SEC’s alleged negligence, Plaintiffs seek to recover their losses from their investments with Madoff.
Defendants have brought a pair of Motions to Dismiss, arguing that the Court lacks jurisdiction to hear the claims under the FTCA, 28 U.S.C. § 2674
et seq.
Under the “discretionary function exception” to the FTCA, federal courts are barred from adjudicating tort actions arising out of federal officers’ discretionary acts. 28 U.S.C. § 2680(a). In brief, officers are only liable if (1) the officers’ actions were prescribed by statute, regulation, or policy, or (2) the officers’ conduct was not susceptible to analysis on social, economic, or
*1019
political policy grounds.
See United States v. Gaubert,
The Complaint contains over fifty pages of allegations summarizing the SEC’s failure to uncover Madoffs fraud. The Complaint also attaches five exhibits, the most substantial of which is the SEC Office of Inspector General’s 450-page
Investigation of Failure of the SEC to Uncover Bernard Madoffs Ponzi
Scheme—
Public Version
[hereinafter “the Report”], which was released in August 2009. (Compl., Ex. A.)
3
Plaintiffs purport to adopt the “factual allegations or determinations made in the report” by “fully incorporating] by reference” the Report as a part of the Complaint. (Compl. fin. 3.) This request is technically impermissible under Fed.R.Civ.P. 10(c), which only permits the incorporation of a legally operable “written instrument” such as a contract, check, letter, or affidavit.
See, e.g., Rennie & Laughlin, Inc. v. Chrysler Corp.,
That said, Defendants have not objected to Plaintiffs’ attempt to incorporate the Report by reference into the Complaint.
(See generally
Defs.’ Motion; Defs.’ Reply.) Additionally, Fed.R.Civ.P. 8(e) requires the Court to “construe[ ] pleadings so as to do justice.” In order for the Court to comply with Rule 8(e) and give Plaintiffs the benefit of any plausible inferences contained in the Report (as Plaintiffs repeatedly urged.the Court to do, see,
e.g.
Compl. ¶ 1 n. 3, Sur-reply at 5 n. 1), the Court has reviewed the full Report and treats it as though it were fully included in Plaintiffs’ Complaint. Although this is an unusual procedure, there is clear legal authority permitting the Court to do so: Plaintiffs’ Complaint “reference[s]” the Report “extensively,” and the factual allegations contained in the Report are “integral to [their] claim.”
United States v. Ritchie,
Although the inclusion of the Report results in an unusually long Complaint, the Ninth Circuit has counseled that an overly detailed complaint is acceptable under Fed.R.Civ.P. 8(a) if, for example, it is “organized, [and is] divided into a description of the parties, a chronological factual background, and a presentation of enumerated legal claims, each of which lists the liable Defendants and legal basis therefor.”
Hearns v. San Bernardino Police Dept.,
Many of Plaintiffs’ allegations (including the factual averments contained in the Report) identify decisions that, in hindsight, could have and should have been made differently. Other allegations reveal the *1020 SEC’s sheer incompetence in regulating Madoffs broker-dealer, market-making, and investment-management operations. What is lacking in the present Complaint, however, is any plausible allegation revealing that the SEC violated its clear, non-discretionary duties, or otherwise undertook a course of action that is not potentially susceptible to policy analysis.
B. FACTUAL ALLEGATIONS
The facts of the Madoff fraud need little introduction. A thorough summary of Ma-doffs operations can be found in the recent decision
In re Bernard, L. Madoff Inv. Secs. LLC,
In the present case, Plaintiffs’ central allegations are largely drawn from the Inspector General’s Report, which Plaintiffs have incorporated by reference into the Complaint. (Compl. ¶ 1 n. 3.) The Complaint alleges the following.
The first warning sign of Madoffs fraud came in 1992, when Avellino & Bienes, a firm that invested exclusively through Ma-doffs brokerage, was exposed as a Ponzi scheme. (Compl. ¶¶ 29-40; Ex. A at 42-*61.) Plaintiffs explain that the SEC’s investigators were “woefully inexperienced” in the area of Ponzi schemes (Compl. ¶ 32) and failed to obtain trading records from the Depository Trust Corporation that could have revealed that Madoffs operations were fraudulent. (Compl. ¶¶ 35, 37.) Because the SEC was focused on Avellino & Bienes rather than Madoff, the SEC staff failed to make a number of other “common sense” inquiries into Madoffs operations that “should have” been done. (Compl. ¶¶ 34, 37, 39.)
The second warning sign came in May 2000, when industry analyst Harry Markopolos provided an eight-page complaint to the Boston SEC office. (Compl. ¶¶ 42-46; Ex. A at 61-67.) The complaint provided evidence “questioning the legitimacy of Madoffs reported returns.” (Compl. ¶ 42.) Markopolos presented his findings to an unqualified senior staff member (Compl. ¶ 44), and although the staffer stated that he forwarded the matter to the New York office, he did not actually do so. (Compl. ¶ 45.)
The third warning sign came in March 2001, when Markopolos submitted a second complaint to the Boston office containing new, simplified information. (Compl. ¶¶ 47-50; Ex. A at 67-74.) This time, the matter was forwarded to New York, but “after just one day” the lead enforcement attorney in New York “rejected it out of hand.” (Compl. ¶ 49.) Although Markopolos’s complaint was more detailed than the average complaint, the attorney wrote a short email stating “I don’t think we should pursue this matter further.” (Compl. ¶¶ 49-50.) 4
The fourth warning sign came in May 2001, when industry publications MAR-Hedge and Barron’s published articles discussing the secrecy of Madoffs operations and the improbability of his consistently strong returns. (Compl. ¶¶ 51-57; Ex. A at 74-77, 80-81, 86.) An SEC staff member in the Boston office asked the New York team reviewing Markopolos’s complaint if they were interested in reading the articles. (Compl. ¶ 55.) The New York team apparently did not read the *1021 articles. (Id.) At the same time, the articles piqued a Washington supervisor’s interest. (Compl. ¶ 56.) Although the supervisor wrote a note on the article stating that “[t]his is a great examination] for us!,” no further actions were taken in the Washington office. (Compl. ¶ 56; Ex. A at 86.)
The first major investigative event came in May 2003, when a hedge fund manager provided a complaint to the SEC’s Office of Compliance Inspections and Examinations in Washington D.C. (Compl. ¶¶ 58-81; Ex. A at 77-145.) The fund manager’s complaint summarized a number of red flags that suggested that Madoff was running a Ponzi scheme. (Compl. ¶ 59.) The Investment Management team in Washington, which was more qualified to handle an investigation into a Ponzi scheme, referred the matter to the Washington office’s Broker-Dealer team. (Compl. ¶¶ 61-62.) The two teams never conferred on the investigation. (Compl. ¶ 62.) Compounding this failure to confer, the Broker-Dealer team employed a number of inexperienced staff members at that time. (Compl. ¶¶ 63-64.) One team member explained that “[a]t the time ... we were expanding rapidly,” (Compl. ¶ 63, quoting Ex. A, at 90) and various staff members recalled that they received little-to-no formal training. (Compl. ¶¶ 63-64.)
Upon receiving the case, the Washington Broker-Dealer team inexplicably failed to begin its investigation for nine months and failed to log its investigation into the SEC’s Super Tracking and Reporting System (STARS), a computer database used to track examinations. (Compl. ¶¶ 65-67; Ex. A at 85 n. 54.) This failure to log the investigation was consistent with the SEC’s regular practice at the time. (Id.) Once the investigation commenced, the team focused its attention on potential front-running 5 ' — with which it was more familiar — rather than a Ponzi scheme. (Compl. ¶¶ 65-67.) The team created a written plan, but the plan was “too narrowly focused” (Ex. A at 142) and the team did not follow through by obtaining relevant information from third parties. (Compl. ¶ 70.) At one point, the Broker-Dealer team drafted a letter “to the [National Association of Securities Dealers] to confirm Madoffs trading activity,” but refrained from sending the letter because, according to one staff member, “it would have been too burdensome and time-consuming for the staff to review the documents that the [National Association of Securities Dealers] would have supplied in response.” (Compl. ¶¶ 69-98.) Similarly, “the team failed to consult Exchange,” even though Madoffs purported options trades were being processed through it. (Compl. ¶ 74.) Instead of receiving this information from third parties that “would have assisted in independently verifying [Madoffs] trading activity,” the team “reified] solely on verbal answers” from Madoff, which, according to the Office of the Inspector General’s consultants, “is not an appropriate method of examination.” (Compl. ¶¶ 70, 72, quoting Ex. A at 111 n. 74, 206 n. 143.) The team supervisor admitted that it was “asinine” for the team not to obtain a proper audit trail, which Plaintiffs characterize as a “common-sense procedure” in such an investigation. (Compl. ¶ 77, quoting Ex. A at 109.)
The Washington team stopped its investigation in April 2004 because SEC supervisors “determined that a new investigation probing mutual funds was more important than following up on Madoff.” *1022 (Compl. ¶ 78.) 6 At the end of the investigation, the team failed to produce a final report, which according to the Report was a “critical error” that later led to unnecessary duplication of efforts. (Compl. ¶ 78, quoting Ex. A at 144.)
The second major investigation started in the Northeast Regional (New York) Office in April 2004, just as the Washington investigation was being put on indefinite hold. (Compl. ¶¶ 82-109.) The New York investigation was prompted by the SEC’s discovery of internal emails from a hedge fund that had invested with Madoff through a feeder fund that invested directly in Madoffs funds. Upon conducting due diligence, the hedge fund had decided to withdraw its investments from the Ma-doff feeder fund. (Compl. ¶¶ 82-83.) The emails summarized the investor’s concerns about Madoffs activities, and essentially tracked the issues raised in the Markopolos reports and the articles that had appeared in MARHedge and Barron’s. (Compl. ¶¶ 83-84.)
The New York investigation proceeded in a similar manner as the Washington investigation. (Compl. ¶ 86.) The case was transferred from an Investment Management team to an ill-equipped Broker-Dealer team; the Broker-Dealer team was not even assembled for seven months, and did not begin working for yet another three months; and, once the investigation commenced, the Broker-Dealer team never consulted the Investment Management team for guidance and advice. (Compl. ¶¶ 86, 88.) Unlike the team that conducted the Washington investigation, the New York Broker-Dealer team failed to even draft a planning memorandum, let alone follow it. (Compl. ¶ 87.) When conducting the investigation, the team accepted Ma-doffs assertions- at face value, even though they knew or should have known that Ma-doff was lying — -for example, by saying that he was no longer trading options (which was contradicted by readily available records, see Ex. A at 172, 207) and that he was satisfied with foregoing hundreds of millions of dollars in potential management fees and receiving only brokerage commissions instead. (Compl. ¶¶ 90-92.) The team focused its investigation on their own area of expertise (front-running and “cherry-picking” 7 ), while ignoring other- potential areas of investigation such as looking for a Ponzi scheme. (Compl. ¶¶ 88-89.) 8 They generally failed to corroborate information with third parties or follow up on red flags such as Madoffs auditor’s conflict of interest and obvious inadequacy to audit a complex operation like Madoffs. (Compl. ¶¶ 94-96.)
In spite of these failings, the New York investigation came remarkably close to uncovering Madoffs fraud in June 2005. The team conducted a two-to-three month *1023 on-site investigation (see Ex. A at 179) and had a formal interview with Madoff in late May (Ex. A at 193-95). Embarrassingly for the SEC, it was during the May meeting that the New York team first learned — from Madoff himself — about the prior Washington investigation. (Compl. ¶¶ 102-04.) Shortly after the interview, the examiners decided that they should contact Madoffs clients to corroborate his trading activity. (Ex. A at 219-21.) The investigators successfully obtained useful information from one relevant third party (Barclays), but they failed to follow up on it because of a mistaken belief that they could not obtain audit-trail data from Bar-clays’s foreign affiliates. (Compl. ¶ 101.) Another staffer stated that, to his understanding, SEC had a general policy of not contacting third parties to follow up on leads. (Compl. ¶ 100.) The team also planned on requesting written responses to follow-up on their face-to-face meeting with Madoff, but ultimately failed to do so, even though they had drafted such an inquiry letter. (Compl. ¶ 108; Ex. A at 203-04.)
When the New York investigators finally suggested conducting on-site visits of Madoffs clients, the team supervisor vetoed the suggestion. (Compl. ¶¶ 97-99.) A Washington investigator had explained that he “was hesitant to make trouble for someone so ‘well connected’ ” (Compl. ¶ 97, quoting Ex. A at 194), and the New York supervisor “expressed a fear that he (and the junior staffers) could be sued as individuals if their inquiries to third parties somehow damaged Madoffs business.” (Compl. ¶ 98.) Within days of the decision not to visit Madoffs clients, the New York investigators began drafting their case-closing memorandum, and the case was closed by September 2005. (Compl. ¶ 107.) Madoff himself believed that had the investigators contacted third-party trading partners, account holders, and/or trade-clearing and -settlement agencies, they would likely have exposed the fraud. (Ex. A at 206-07.)
Almost immediately after the New York team closed its investigation, Harry Markopolos provided the Boston office with a third version of his report on Madoffs alleged fraud, sparking off yet another investigation in Madoffs operations. (Compl. ¶¶ 110-146.) Markopolos’s report summarized the many warning signs that Madoff was running a Ponzi scheme, and referred the SEC to a handful of industry insiders who could corroborate Markopolos’s suspicions. (Compl. ¶¶ 111-16.) Markopolos even recommended that the SEC simply compare Madoffs purported over-the-counter options trading to the publicly-reported information regarding exchange-based options trading. (Compl. If 115; see also Ex. C, at 6-7.) Markopolos explained that if Madoff were truly trading in options, his high-volume trades would have a visible effect in the market. (Compl. ¶ 115.).
The Boston office referred the matter to the New York office, and emphasized to the New York staff that the report deserved close attention. (Compl. ¶ 117.) The New York office, instead of staffing the matter with experts in Ponzi schemes, placed relatively inexperienced staff members on the case. (Compl. ¶ 118.) The investigators failed to treat the matter as a Ponzi scheme investigation, and generally refused to credit Markopolos’s report because of interpersonal tensions (Compl. ¶¶ 119-20, 122) and a misguided belief that Markopolos was seeking a reward for uncovering the fraud. (Compl. ¶ 121.) The team also relied on the earlier New York team’s incorrect assertion that it had in fact investigated the Ponzi-scheme angle, which deterred the new team from fully following up on Markopolos’s suggestions. (Compl. ¶ 123.) Additionally, because the new team had failed to file a “matter un *1024 der inquiry” report for two months, a new tip — this time from an anonymous investor who stated that he had invested with Ma-doff but withdrew his money when he began suspecting fraud — was improperly ignored. (Compl. ¶¶ 124-25.) Because the team felt outmatched by the technical aspects of Madoffs operations, they forwarded certain matters to the SEC’s Office of Economic Analysis, but due to miscommunications running in both directions, these efforts failed to produce useful insights. (Compl. ¶¶ 128-80.)
The unprepared New York investigations team eventually proceeded with its investigation and interviewed Madoff directly. (Compl. ¶¶ 132-36.) At one point, the interview produced potentially incriminating information — Madoffs account number with the Depository Trust Company — but the investigators failed to properly follow up on the matter. (Compl. ¶¶ 136-37.) When a junior staffer contacted the Depository Trust Company, the staffer failed to recognize the significance of the fact that Madoff held his assets in commingled accounts, and the staffer also failed to ask about the size of the account. (Compl. ¶¶ 138-39; Ex. A at 323-24.) Ma-doff himself has acknowledged that had the investigators simply asked to see the size of the account, they immediately would have discovered that Madoffs trading positions were nowhere near as large as he had claimed. The staff believed, based on Madoffs representations, that the Depository Trust Company account held over $2 billion of securities; in fact, the account held only between $10 and $30 million. (Ex. A at 332-33.)
The investigators also failed to recognize the significance of the fact that the National Association of Securities Dealers told them that Madoff had no option positions on a particular date, even though Madoffs purported trading strategy was based on options trades. (Compl. ¶ 140.) Finally, the investigators made, in the Report’s description, an “inexplicable decision” not to send a letter to obtain information from Madoffs purported European counterparties. (Compl. ¶ 141; Ex. A at 371.) The team closed the investigation in June 2006, having overlooked various clear indications of Madoffs fraud. (Compl. ¶¶ 144^47.) The team also failed to follow up on possible charges related to Madoffs various misrepresentations and non-disclosures during the interview and examinations. {See Ex. A at 322-23.)
Following that investigation, the SEC received three more tips that might have uncovered the fraud. (Compl. ¶¶ 148-53.) The first was dismissed when Madoffs attorney told the SEC that the tipster was not actually a Madoff client (Compl. ¶ 150); the second was yet another Markopolos warning that was simply ignored because the staff believed that it had fully examined the Ponzi-scheme allegations (Compl. ¶ 151; Ex. A at 354-55); and the third tip (from the former Madoff investor whose earlier complaint had arrived just prior to the opening of the final investigation) was likewise ignored because the investigation was deemed complete. (Compl. ¶¶ 152-53.)
More than two years after the closure of the final investigation, Madoffs fraud was exposed. (Compl. ¶¶ 154-55.) The fraud could have been discovered at any number of points in the previous sixteen years had the SEC “performed its everyday, non-discretionary functions with the most basic level of competence.” (Compl. ¶ 158.) At various points, even “a single action, performed diligently and ably, or even with the most minimal competence, would have exposed the scheme.” (Compl. ¶ 159.)
*1025 II. PRELIMINARY PROCEDURAL ISSUES
A. THE SECURITIES AND EXCHANGE COMMISSION IS NOT A PROPER DEFENDANT
The three Dichter Plaintiffs (that is, the Dichter-Mad investment partnership, Philip Dichter, and Claudia G. Dichter) voluntarily dismissed the SEC and the Doe Defendants on January 11, 2010.
The SEC brings a separate Motion to Dismiss Plaintiff Gordon’s claims against it. [Docket no. 7.] In its one-page motion, the SEC cites clear controlling authority that bars Gordon’s claims.
See, e.g., FDIC v. Craft,
In Gordon’s Opposition, 9 he does not even attempt to argue that his claims against the SEC are viable. Accordingly, the SEC’s Motion is GRANTED. Gordon’s claims against the SEC are DISMISSED.
B. THE DOE DEFENDANTS ARE PERMISSIBLE
As for the Doe Defendants, Gordon properly points out that the Government does not necessarily have standing to object to their presence. For purposes of this motion, then, the Doe Defendants’ liability is linked with that of the United States.
III. LEGAL STANDARDS
A. MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION
In order to comply with the notice pleading standards of Fed.R.Civ.P. 8(a), a plaintiffs complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ”
Ashcroft v. Iqbal,
— U.S. -,
*1026
Generally, the Court’s analysis is limited to the contents of the complaint.
See Schneider v. Cal. Dept. Of Corrections,
When a motion to dismiss is granted, ordinarily “any dismissal!!,] ... except one for lack of jurisdiction, improper venue, or failure to join a party under Rule 19[,] operates as an adjudication on the merits.” Fed.R.Civ.P. 41(b) (emphasis added).
B. FEDERAL TORT CLAIMS ACT
The Federal Tort Claims Act (“FTCA”) “gives federal courts jurisdiction over claims against the United States for money damages ‘for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person,! would be liable to the claimant in accordance with the law of the place where the act or omission occurred.’ ”
Sheridan v. United States,
C. DISCRETIONARY FUNCTION EXCEPTION
The discretionary function exception provides the government with immunity from suit for “[a]ny claim ... based upon the exercise or performance of the failure to exercise or perform a discretionary function or duty on the part of a federal agency or employee of the Government, whether or not the discretion involved be hbused.” 28 U.S.C. § 2680(a). “In this way, the discretionary function exception serves to insulate certain governmental decision-making from ‘judicial second guessing of legislative and administrative decisions grounded in social, economic, and political policy through the medium of an action in tort.’ ”
Terbush v. United States,
Whether a given action by a government employee is protected by the discretionary function exception involves a two-part inquiry.
First, the court must determine whether the challenged action involves an “element of judgment or choice.”
United States v. Gaubert,
Second, “even assuming the challenged conduct involves an element of judgment, it remains to be decided whether that judgment is of the kind that the discretionary function exception was designed to shield.”
Id.
“Because the purpose of this exception is to prevent judicial second-guessing of legislative and administrative decisions grounded in social, economic, and political policy ..., the exception protects only governmental actions and decisions based on considerations of public policy.”
Id.
at 323,
In assessing the second step, it is important to keep in mind that “if a regulation allows the employee discretion, the very existence of the regulation creates a strong presumption that a discretionary act authorized by the regulation involves consideration of the same policies which led to the promulgation of the regulations.”
Id.
at 324,
Where there is no statute, regulation, or policy on point (either conferring discretion or limiting discretion), the relevant question is not whether the decision was the result of an actual policy-based decision-making process. As the Ninth Circuit has repeatedly explained, “we do not need actual evidence that policy-weighing was undertaken.”
Terbush,
The Ninth Circuit has noted that “the distinction between protected and unprotected decisions can be difficult to apprehend, but this is the result of the nature of government actions — they fall ‘along a spectrum, ranging from those totally divorced from the sphere of policy analysis, such as driving a car, to those fully grounded in regulatory policy, such as the regulation and oversight of a bank.’ ”
Soldano v. United States,
There are obviously discretionary acts performed by a Government agent that are within the scope of his employment but not within the discretionary function exception because these acts cannot be said to be based on the purposes that the regulatory regime seeks to accomplish. If one of the officials involved in this case drove an automobile on a mission connected with his official duties and negligently collided with another car, the exception would not apply. Although driving requires the constant exercise of discretion, the official’s decisions in exercising that discretion can hardly be said to be grounded in regulatory policy.
Gaubert,
In addition to these general principles, it should also be noted that the courts have rejected “a rigid dichotomy between ‘planning’ and ‘operational’ decisions and activities.”
Terbush,
D. PROCEDURAL CONSIDERATIONS RELATING TO THE DISCRETIONARY FUNCTION EXCEPTION
In deciding whether to grant Defendant’s Motion to Dismiss for lack of subject matter jurisdiction, the Court “must accept as true the factual allegations in the complaint.”
Terbush v. United States,
These considerations can be summarized succinctly by reference to * the two-step analysis set forth in
Gaubert,
First, the government may show that a statute, regulation or policy confers discretion on the government actor; this gives rise to a “strong presumption” that the alleged harmful act was guided by policy judgment.
Id.
at 324,
“[0]nce the Government met its burden, ... the party opposing [the application of the discretionary function exception] ha[s] to present sufficient evidence to withstand dismissal” for lack of jurisdiction.
Id.
Under
Gaubert,
the plaintiffs may meet their the burden by showing either (1) that there are mandatory rules prescribing the actor’s course of action, or (2) that the actor’s course of action was not “of the kind” that is “susceptible to policy analysis.”
Gaubert,
E. ILLUSTRATIVE CASELAW
As explained by a leading treatise, “cases under the [Federal Tort Claims] Act can be roughly grouped into there categories: (1) claims based upon [non-regulatory] determinations or decisions or other acts of choice or judgment of government officials and administrators; (2) claims based upon the regulatory activities of regulatory agencies or officials; and (3) claims arising from the design or execution of public works and other authorized governmental programs.” Lester S. Jayson & Robert C. Longstreth, 2 Handling Federal Tort Claims, § 12.05[1] (2009 update).
“Whatever else the discretionary function exception may include, ... it plainly was intended ‘to encompass the discretionary acts of the Government acting in its role as regulator of the conduct of private individuals.’ ” Jayson & Longstreth,
Federal Tort Claims,
§ 12.07 (quoting
United States v. Varig Airlines,
A leading case involving government regulators is
United States v. Gaubert,
The Supreme Court, after restating the basic two-part test for the discretionary function exception, held that “[d]ay-to-day management of banking affairs, like the management of other businesses, regularly requires judgment as to which of a range of permissible courses is the wisest.”
Id.
at 325,
Ultimately, the Court rejected the plaintiffs argument “that the challenged actions fall outside the discretionary function exception because they involved the mere application of technical skills and business expertise.”
Id.
at 331,
Notably, the Court approvingly quoted from the lower court’s explanation that the agency undertook its day-to-day role in an effort to further “social, economic, or political policies”:
First, they sought to protect the solvency of the savings and loan industry at large, and maintain the public’s confidence in that industry. Second, they sought to preserve the assets of [the thrift] for the benefit of depositors and shareholders, of which [plaintiff] was one.
Id.
at 332,
“In the end,” the Court concluded, “Gaubert’s amended complaint alleges nothing more than negligence on the part of the regulators.”
Id.
at 334,
Gaubert, then, is a guidepost for two reasons: one, because it is the most recent Supreme Court authority in this area, and two, because it involved a roughly analogous factual scenario — the conduct of financial regulators in their day-to-day regulatory activities. (Additional cases that specifically discuss the SEC are discussed infra.) It is worth noting, then, that Gaubert’s reasoning weighs heavily in favor of Defendant’s position.
A pair of other cases are worth discussing at length. These cases set forth principles that have guided the Ninth Circuit’s analysis where cases involve a combination of discretionary and non-discretionary duties.
In
Glacier Bay,
the Ninth Circuit held that hydrographers for the National Oceanic and Atmospheric Administration could be sued for their non-discretionary actions made while preparing nautical charts.
The court then engaged in a close analysis of the surveyors’ actions to determine if they violated any non-discretionary duties. Id. at 1452-54. To find these mandatory duties, the court looked to “the Department of Commerce’s ‘Hydrographic Manual’ and [] the 1964 and 1975 Project Instructions specifically drafted for the two surveys [at issue].’ ” Id. at 1452. The court noted that, contrary to the government’s assertion, such internal guidelines were in fact “binding for purposes of the discretionary function inquiry.” Id. at 1452 n. 1. The court found that the Hydro- *1032 graphic Manual and Project Instructions established a number of mandatory procedures for conducting oceanic surveys. Id. at 1451-52. Much of the “discretion” available to the surveyors involved purely scientific judgments, not judgments based on “economic, political and social policy” that would be shielded from scrutiny under the FTCA. Id. at 1453. Notably, the court contrasted the 1964 survey instructions with the 1975 survey instructions and found that the former contained mandatory language — “[a]ll indications of shoals shall be thoroughly investigated” — whereas the latter did not contain such language, and instead stated that surveys “should be guided by [27 different] considerations ... and [the surveyor’s] past experience in similar areas.” Id. at 1453 (quoting Hydrographic Manual and 1964 Survey Instructions). Accordingly, the earlier 1964 survey was deemed non-discretionary, whereas the 1975 survey — requiring surveyors to carefully balance 27 different considerations — was discretionary. Id.
Three years later, the Ninth Circuit clarified its holding in
Glacier Bay,
explaining that in some instances, an underlying violation of a mandatory duty will be immune from suit if another government agent’s own exercise of discretion intervened prior to the plaintiffs injury. The court explained that the discretionary function exception applies whenever a “robust exercise of discretion intervenes between an alleged government wrongdoer and the harm suffered by a plaintiff.”
General Dynamics Corp. v. United States,
The General Dynamics court distinguished Glacier Bay by emphasizing that the central focus is the nature of the allegedly harmful act. Id. at 1284-85. Obviously, “many actions within an agency pass through the hands of somebody with some discretion at some stage”; the mere presence of discretion at one stage in the process does not automatically immunize the non-discretionary negligent conduct that precedes. Id. at 1284. Accordingly, when an oceanic chart is negligently investigated and drafted in violation of mandatory rules, the presence of a discretionary final review does not immunize the negligent investigations and drafting. Id. In this regard, the court noted that Glacier Bay involved a “tight coupling between hydrographers, reviewers, charts, and results.” Id. at 1284.
But when an actor with “broad based discretion” such as the prosecutor in General Dynamics undertakes “a totally separate exercise of discretion” that is independent of the underlying negligent act, all of the government’s acts are immunized— including the earlier actions that may have violated mandatory duties. Id. at 1285. The court explained that prosecutors have “access to a great deal of information beyond that submitted by any one agency” such as the negligent auditors. Because “the prosecutors could have had even more information if they had chosen to pursue it,” the prosecutor’s decision to prosecute the plaintiff was a sufficiently “robust ex *1033 ercise of discretion” to trigger application of the discretionary function exception. Id. As a result, all of government’s negligent acts were immunized — even the ones that violated non-discretionary auditing principles.
Although they are factually distinguishable from the present case, two out-of-circuit decisions are also worth noting in order to show that the reasoning in
General Dynamics
has been adopted in other circuits.
12
In
Sloan v. United States Dept. of Housing and Urban Development,
In
Fisher Bros. Sales, Inc. v. United States,
F. UNDERLYING POLICIES OF THE DISCRETIONARY FUNCTION EXCEPTION
Before analyzing the parties’ specific arguments, it is also helpful to explain the policies that animate the discretionary function exception. As summarized succinctly in
Gray v. Bell,
The modern policy basis justifying sovereign immunity from suit has three principal themes. First, and most important, under traditional principles of separation of powers, courts should refrain from reviewing or judging the propriety of the policymaking acts of coordinate branches. Second, consistent with the related doctrine of official im *1034 munity, courts should not subject the sovereign to liability where doing so would inhibit vigorous decisionmaking by government policymakers. Third, in the interest of preserving public revenues and property, courts should be wary of creating huge and unpredictable governmental liabilities by exposing the sovereign to damage claims for broad policy decisions that necessarily impact large numbers of people. Framed in different fashions, each of these themes appears again and again, alone or in combination, as a modern justification for retaining a form of immunity, under the general rationale that courts should not “interfere” with government operations and policymaking.
Id. at 511 (emphasis added, internal footnotes omitted).
Notably absent from this rationale is any mention of “fairness.” As explained in
National Un. Fire Ins. v. United States,
Private actors generally must pay for the harm they do by carelessness. The government’s power to tax enables it, better than any private actor, to perform its conduct with reasonable care for the safety of persons and property, and to spread the cost over all the beneficiaries if its conduct negligently causes harm. Fairness might seem to suggest that the government should be liable more broadly than private actors. But at its root, the discretionary function exception is about power, not fairness.
Id. at 1422.
As a result of these underlying policies and principles, Plaintiffs are misguided when they argue that “there is no oversight at all available to the taxpaying citizens, as well as the nation, to insure that the SEC does its job.” (Opp. at 15.) This broad policy argument is unavailing.
IV. ANALYSIS AND DISCUSSION
A. RELEVANT LEGISLATIVE HISTORY
It is often remarked that Congressional intent is particularly relevant to the Federal Tort Claims Act because “no action lies against the United States unless the legislature has authorized it.”
E.g., Dalehite v. United States,
It is notable, then, that Congress, when drafting and' debating the Federal Tort Claims Act, repeatedly and explicitly suggested that the discretionary function exception was intended to apply to the SEC.
See Dalehite v. United States,
designed to preclude application of the bill to a claim against a regulatory agency, such as the Federal Trade Commission or the Securities and Exchange Commission, based upon an alleged abuse of discretionary authority by an officer or employee, whether or not negligence is alleged to have been involved. To take another example, claims based upon an allegedly negligent exercise by the Treasury Department of the blacklisting or freezing powers are also intended to be excepted. The bill is not *1035 intended to authorize a suit for damages to test the validity of or provide a remedy on account of such discretionary acts even though negligently performed and, involving an abuse of discretion.
Dalehite,
B. THE GOVERNMENT HAS SATISFIED ITS THRESHOLD BURDEN BY IDENTIFYING STATUTES, REGULATIONS, AND CASES DISCUSSING THE SEC’S GENERAL POWERS AND DUTIES
In its Motion, the Government sets forth a number of general, broad principles governing the SEC’s duties and functions. These legal assertions establish that the alleged wrongs were done in the course of the SEC’s exercise of its discretion, both in terms of conducting its investigations and deciding whether or not to bring enforcement proceedings. These basic conclusions are supported by statutes, regulations, and caselaw. Defendant has therefore satisfied its threshold burden under
Gaubert
of establishing that the relevant statutes and regulations “allow[ ] the employee[s] discretion.”
Gaubert,
This section discusses the Government’s threshold showing that its actions were discretionary and are presumed to be susceptible to policy analysis. The following section discusses Plaintiffs’ attempt to rebut this strong presumption.
1. SEC’s Investigative Powers
Section 21 of the Securities and Exchange Act of 1934, codified at 15 U.S.C. § 78u, establishes the SEC’s investigatory powers. The statute explicitly provides discretion to the SEC:
The Commission may, in its discretion, make such investigations as it deems necessary to determine whether any person has violated, is violating, or is about to violate any provision of this chapter, [or] the rules or regulations thereunder, ... and may require or permit any person to file with it a statement in writing, under oath or otherwise as the Commission shall determine, as to all the facts and circumstances concerning the matter to be investigated. The Commission is authorized in its discretion, ... to investigate any facts, conditions, practices, or matters which it may deem necessary or proper to aid in the enforcement of such provisions....
15 U.S.C. § 78u(a)(l) (emphasis added).
Little discussion is necessary. The statute repeatedly uses permissive language rather than mandatory language. The SEC has discretion to decide both the timing of when it “make[s] such investigations,” and the manner and scope of how to “investigate any facts, conditions, practices, or matters,” whether through “a statement in writing, under oath or otherwise.”
Id.
(emphasis added). All of these decisions are framed in permissive language (“[t]he Commission may ... ”) and the SEC is permitted to proceed “as it deems necessary.”
Id.
In other words, the statute is discretionary — the SEC retains discretion over when and how to conduct its investigations. This leads to a strong presumption that the SEC’s actions were discretionary.
Gaubert,
The SEC’s own regulations are similarly discretionary. As explained in the SEC’s formal policies regarding Enforcement Activities, as summarized in 17 C.F.R. § 202.5:
Where, from complaints received from members of the public, communications from Federal or State agencies, examination of filings made with the Commission, or otherwise, it appears that there may be violation of the acts administered by the Commission or the rules or regulations thereunder, a preliminary investigation is generally made. In such preliminary investigation no process is issued or testimony compelled. The Commission may, in its discretion, make such formal investigations and authorize the use of process as it deems necessary to determine whether any person has violated, is violating, or is about to violate any provision of the federal securities laws or the rules of a self-regulatory organization of which the person is a member or participant....
17 C.F.R. § 202.5(a) (emphasis added). This regulation does not require the SEC to conduct its investigations in any particular manner; rather, the agency retains broad discretion to decide how to conduct its investigations.
In light of this statutory and regulatory language, the courts have unanimously rejected challenges to the SEC’s use of its investigatory powers. In a pre-FTCA case, Justice Vinson, then a member of the District of Columbia Court of Appeals, wrote an opinion that, inter alia, granted official immunity to members of the SEC for their investigatory activities.
Jones v. Kennedy,
the carrying out of investigations and the turning over of evidence to the Attorney General for presentation to a grand jury come under the authorized duties of the Commission. And likewise, plaintiff has not met, in these allegations, the task of showing acts which fall outside of the [SEC’s] immunity.
Id. at 43-44 (internal footnote omitted) (emphasis added) (citing 15 U.S.C. §§ 77h(e), 77s(c), 77t(b)).
Numerous subsequent courts have held that the SEC is immune from liability for its investigative actions. In
Schmidt v. United States,
The same point has been stated in subsequent cases including
Sprecher v. Von Stein,
2. SEC’s Enforcement Powers
The SEC likewise has discretion regarding the use of its enforcement powers. Under 15 U.S.C. § 78u(d)(l), the SEC has discretion over decisions to seek an injunction against ongoing violations of the Exchange Act:
Whenever it shall appear to the Commission that any person is engaged or is about to engage in acts or practices constituting a violation of any provision of this chapter [or] the rules or regula *1037 tions thereunder, ... it may in its discretion bring an action in the proper district court of the United States ... to enjoin such acts or practices....
15 U.S.C. § 78u(d)(l) (emphasis added).
The SEC retains similar discretion regarding whether to seek monetary relief or other injunctive relief. See § 78u(d)(3) (“the Commission may bring an action in a United States district court to seek ... a civil penalty to be paid by the person who committed such violation.”) (emphasis added); § 78u(d)(5) (“the Commission may seek ... any equitable relief that may be appropriate or necessary for the benefit of investors.”) (emphasis added).
The regulations are similarly discretionary. Again under 17 C.F.R. § 202.5:
After investigation or otherwise the Commission may in its discretion take one or more of the following actions: Institution of administrative proceedings looking to the imposition of remedial sanctions, initiation of injunctive proceedings in the courts, and, in the case of a willful violation, reference of the matter to the Department of Justice for criminal prosecution. The Commission may also, on some occasions, refer the matter to, or grant requests for access to its files made by, domestic and foreign governmental authorities or foreign securities authorities, self-regulatory organizations such as stock exchanges or the National Association of Securities Dealers, Inc., and other persons or entities.
17 C.F.R. § 202.5 (emphasis added).
Again, the courts are unanimous in holding that these statutory powers are discretionary. In
SEC v. Research Automation Corp.,
The same conclusion was reached in
S.E.C. v. Better Life Club of America, Inc.,
3. The Unanimous Precedent is Supported by the Justifications of the Discretionary Function Exception
The
Better Life Club
court relied on an Administrative Procedures Act case decided by the Seventh Circuit,
Board of Trade v. SEC,
Doing nothing may be the most constructive use of the Commission’s resources. Congress gives the SEC a *1038 budget, setting a cap on its personnel. With limited numbers of staff-years, the Commission must enforce several complex statutes. To do this intelligently the Commissioners must assign priorities. Prosecuting the System means less time for something else — investigating claims of fraud in issuing new stock or conducting a takeover contest, resolving disputes under the Investment Company Act, and so on. Agencies may find it worthwhile to give short shrift to a particular claim if the aggrieved party can file its own suit (as the [plaintiff] futures markets may), for turning the subject over to private litigation frees up time without necessarily diminishing the enforcement of the statute. Yet even when the aggrieved party cannot vindicate its own rights, as with the National Labor Relations Act — indeed, even when the person complaining about failure to prosecute is a defendant whose business is going down the tubes — decisions about the best use of the staffs time are for the prosecutor’s judgment.
Courts cannot intelligently supervise the Commission’s allocation of its staffs time, because although judges see clearly the claim the Commission has declined to redress, they do not see at all the tasks the staff may accomplish with the time released. Agencies must compare the value of pursuing one case against the value of pursuing another; declining a particular case hardly means that the SEC’s lawyers and economists will go twiddle their thumbs; case-versus-case is the daily tradeoff. Judges compare the case at hand against a rule of law or an abstract standard of diligence and do not see the opportunity costs of reallocations within the agency. That fundamental difference in the perspectives of the two bodies is why agencies (and other prosecutors) rather than courts must make the decisions on pursuing or dropping claims. Resource allocation is not a task governed by “law”. It is governed by budgets and opportunities. Agencies “take Care that the Laws be faithfully executed” (Art. II, § 3) by doing the best they can with the resources Congress allows them. Judges could make allocative decisions only by taking over the job of planning the agency’s entire agenda, something neither authorized by statute nor part of their constitutional role.
Id. at 531 (internal citations omitted).
Thus, even if the plain language of the Securities Exchange Act were insufficient to bar Plaintiffs’ claims, Judge Easter-brook’s policy analysis explains the various reasons that the discretionary function exception applies to the SEC’s actions in the present case. Little more needs to be said, except that numerous other court decisions support this conclusion.
A large number of courts have held that SEC decisions are unreviewable under the FTCA and/or the Administrative Procedures Act.
See, e.g., Block v. SEC,
In addition, courts have repeatedly held in other contexts that the conduct of regulatory investigations are immune from FTCA liability unless there are mandatory directives that limit the investigators’ discretion to determine both the scope and the manner of the investigation.
See, e.g., Alfrey v. United States,
The weight and logic of this caselaw leads directly to the conclusions proposed by the Government: the decisions of whether and how to conduct investigations and enforcement actions are firmly lodged in the SEC’s discretion.
4. Procedural Effect of SEC’s Statutory and Regulatory Discretionary
As explained in
Gaubert,'
“[w]hen established governmental policy, as expressed or implied by statute, regulation, or agency guidelines, allows a Government agent to exercise discretion, it must be presumed that the agent’s acts are grounded in policy when exercising that discretion.”
C. PLAINTIFFS’ BROAD ALLEGATIONS OF MISCONDUCT ARE UNAVAILING
At various points in their Complaint and moving papers, Plaintiffs assert that the SEC violated various unidentified “[p]olicies and practices,” and “common-sense.” {E.g., Compl. ¶ 12 (alleging that the SEC staff “fail[ed] to follow the SEC’s clear policies and practices”)). 13
To the extent that Plaintiffs rely on conclusory allegations about “policies,” “practices,” and “common-sense,” they have failed to rebut Defendant’s threshold showing. Broad allegations regarding undefined “policies and practices” are insufficient under clear Ninth Circuit precedent. In the recent decision in
Doe v. Holy See,
Like the plaintiff in
Doe v. Holy See,
Plaintiffs in this case largely fail to identify any mandatory “policies” or “practices” that were violated in this case.
{Cfi infra
Part IV.C.) Plaintiffs’ “labels and conclusions” are insufficient to satisfy the pleading requirements of Fed.R.Civ.P. 8(a)(2).
See Iqbal,
Likewise, Plaintiffs have wholly failed to identify any of the SEC’s actions that were not “susceptible to policy analysis.”
See Gaubert,
In light of the Government’s showing that the SEC retains broad discretion to regulate securities markets through formal and informal means
(see supra
Part III.A), the Government has sufficiently satisfied its threshold burden of showing that the relevant investigative and enforcement decisions were discretionary and/or susceptible to policy judgments. Under
Gaubert,
this threshold showing creates a “strong presumption” that the discretionary function exception is satisfied.
Gaubert,
D. PLAINTIFFS’ ARGUMENTS ABOUT MANDATORY POLICIES ARE UNAVAILING
In an oversized sur-reply, 15 Plaintiffs attempt to satisfy their burden of rebuttal by identifying five purportedly mandatory duties imposed on the SEC and its staff. These are: sharing information; obtaining trading records and other information from third parties; hiring, training, and/or deploying qualified staff members; avoiding improper personal motivations; and engaging in various administrative case-management tasks.
As Plaintiffs themselves point out in their sur-reply, “it is important to specifically identify the allegations of the Complaint relating to the SEC’s violation of mandatory policies.” (Surreply at 5.) Yet Plaintiffs’ factual allegations (which purport to incorporate the Report in its entirety) fail to support these conclusions. Plaintiffs almost wholly fail to allege that SEC’s agents violated any mandatory duties, and where Plaintiffs’ allegations provide an inference that such mandatory duties existed, Plaintiffs’ arguments are defeated by the holding in
General Dynamics,
1. Duty to Share Information
Plaintiffs’ Complaint alleges that SEC teams failed to coordinate their investigations among themselves and with the National Association of Securities Dealers and Chicago Board of Options Exchange. (Surreply at 6, citing Compl. ¶¶ 37, 62, 63, 78, 86, 103, 105, 123, 128, 130, 131.) According to Plaintiffs, these “negligent failures to communicate ... were prohibited bylaw.” (Id.)
*1042 Plaintiffs have failed to support their assertions. Plaintiffs’ conclusory allegations fail to establish that SEC examiners were guided by any mandatory duties requiring them to share information and coordinate their activities.
Plaintiffs argue that Section 17 of the Securities Exchange Act of 1934, codified at 15 U.S.C. § 78q, imposes mandatory duties requiring SEC staff to share information. The statute reads:
The Commission and the examining authorities 16 shall share such information [regarding securities exchanges and their members, brokers and dealers, ratings organizations, and clearing agencies], including reports of examinations, customer complaint information, and other nonpublic regulatory information, as appropriate to foster a coordinated approach to regulatory oversight of brokers and dealers that are subject to examination by more than one examining authority.
15 U.S.C. § 78q(k)(2) (emphasis added).
The statute clearly provides for SEC discretion. The mandatory “shall” is modified by the discretionary “as appropriate.”
See Sabow,
The legislative history supports this conclusion. This particular subsection (formerly labeled subsection (i)) was added to the statute in 1996 by the National Securities Markets Improvement Act of 1996, Pub.L. 104-290, § 108. It is instructive to contrast the statute’s final language with the language of the original House bill. The House’s bill included a complex set of reporting and coordination requirements for self-regulatory organizations. See H.R. Rep. 104-622, 104th Cong., 2d Sess., 1996 U.S.C.C.A.N. 3877, 3877 (1996). The original bill required, inter alia: annual meetings between the SEC and self-regulatory organizations, § 108(a)(i)(2), periodic standardized reporting requirements for the SEC and self-regulatory organizations, § 108(a)(i)(3), annual evaluations by an SEC-created panel, § 108(a)(i)(7), and annual reports to Congress, § 108(a)(i)(8). Id. These requirements were mandatory, not discretionary: the SEC and the self-regulatory organizations had no flexibility in implementing these clear congressional directives.
However, after some legislative wrangling, see H.R. Conf. Rep. 104-864, 1996 U.S.C.C.A.N. 3920, 3920 (1996), the House-Senate conference committee stripped all of the above-mentioned requirements and left intact only a few generalized requirements. 17 The central pur *1043 pose of the final bill, as explained by the conference committee, was to streamline regulation between federal and state authorities. id. at 3920-21. The purpose of the remaining portions of the bill — apparently including § 108 — was “to eliminate duplication, promote efficiency and protect investors.” Id. at 3921. This broad language sets forth three general policy goals, the balancing of which requires the SEC to make inherently discretionary judgments. See also Milton R. Schroeder, The Law of Regulation of Financial Institutions, ¶ 8.06[1] (2009 update) (“The Act ... calls for information sharing between authorities and the elimination of unnecessary and burdensome duplication in the examination process.”); Rutherford B. Campbell, Jr., Blue Sky Laws and the Recent Congressional Preemption Failure, 22 J. Corp. L. 175, 204 n. 156 (1997) (“The Act ... mandates that federal authorities attempt to eliminate duplication and enhance coordination and cooperation with the states as concerns the regulation of brokers.”).
In short, the law cited by Plaintiffs is purely discretionary. Under the well-established requirements of the discretionary function exception, this Court cannot second-guess the SEC’s failure to simultaneously accomplish all three of these competing policy goals set out by Congress. The goals require policy judgment and resource allocation, and are therefore subject to the discretionary function exception,
a. Plaintiffs’ factual allegations
In addition to these clear statutory rules, Plaintiffs’ Complaint expressly alleges that formal policies did not exist. The Report (which is incorporated into the Complaint by reference) quotes one staff member as stating that “there was no rule or policy about ... information-sharing at [the investigative] level between offices.” (Report at 133, 198, quoting testimony of Eric Swanson.) Taking this allegation as true, Plaintiffs’ Complaint directly contradicts the conclusory assertions in their surreply.
b. Summary re: duty to share information
Plaintiffs have therefore failed to meet their burden of identifying either a mandatory duty requiring the SEC to share information with other regulators, or plausible allegations that the SEC’s decisions regarding information-sharing were not susceptible to policy analysis. The SEC retained discretion to determine the manner and scope of its investigations.
See Vickers,
2. Failing to Request Materials from Third Parties
Plaintiffs argue that the SEC violated “formal SEC policies” and “basic auditing principles” by “repeatedly failfing] to request materials from third parties to substantiate Madoffs claimed trading activity.” (Surreply at 8, citing Compl. ¶¶ 34-36, 67, 74, 77, 101, 143.) Again, Plaintiffs fail to identify any of the “formal SEC policies” upon which they rely. But Plaintiffs insist that “SEC staffers themselves considered it mandatory [to determine if Madoff was actually making the trades he purported to be making], given one staffer’s characterization of the failure to do so as ‘asinine.’” (Surreply at 10, quoting Compl. ¶ 77.)
Plaintiffs’ arguments are not supported by their allegations. It is unclear why an SEC staff member’s use of the word “asinine” provides evidence of an SEC policy. *1044 “Asinine” means “unintelligent, stupid, silly, [or] obstinate.” Webster’s Third New International Dictionary 128 (1981). “Asinine” does not mean that a person has violated a non-discretionary legal duty; nor does “asinine” mean that the person has made a decision that is not susceptible to policy judgment.
Plaintiffs fail to identify any other allegations that state or even imply the existence of mandatory duties to obtain records from third parties. In fact, the Complaint is replete with factual allegations suggesting that there were no SEC policies regarding requesting information from third parties. The Report quotes a former SEC staff member as stating that the SEC “always” obtained Depository Trust Company statements “from the firm” being investigated rather than from the Depository Trust Company itself. (Ex. A at 48, quoting testimony of Demetrios Vasilakis, emphasis added.) The Report also quotes a supervisor as stating that “most of the time we do not send out [requests for trading] confirmations and do asset verification.” (Ex. A at 206, quoting testimony of Robert Sollazzo.) As a result of these and other statements, the Report explained it was “common practice” to rely on the firm under investigation, (Ex. A at 48), and that “it was not unusual for [examiners] to rely exclusively on records and data produced by the” firm being investigated. (Ex. A at 98, emphasis added; see also Ex. A at 191 (noting that “it was not normal practice in the exam program to reach out to entities” that centrally cleared and settled trades).)
Because Plaintiffs’ Complaint attempts to incorporate the Report in its entirety, Plaintiffs therefore allege that there was an absence of mandatory duties requiring SEC staff to use specific investigative techniques. Although it may have been good practice for the SEC to follow up with third parties, it was not required by mandatory SEC policies. (See Compl. ¶ 35, citing Ex. A, at 290 n. 202.)
Plaintiffs have therefore failed to plead facts that overcome the discretionary function exception. The statutes, regulations, and caselaw discussed
supra
establish beyond peradventure that the SEC retained full discretion to determine the manner and scope of its investigation.
See Vickers,
3. Assigning Unqualified Staff Members to Investigative Teams
Plaintiffs argue that “several SEC staffers were inexcusably unqualified for their positions,” and that the SEC “assigned [ ] staffers who had no understanding of securities transactions, and were otherwise unqualified, to the Madoff investigations.” (Surreply at 8, citing Compl. ¶¶ 32, 37, 46, 61-64, 67, 88-89, 100, 118, 126, 132, 134.)
It is well-established that “employment, supervision and training” decisions “fall squarely within the discretionary function exception.”
Nurse v. United States,
Plaintiffs have failed to identify any allegations that would bring their case outside the purview of the Ninth Circuit’s general caselaw on this question. Accordingly, Defendant has satisfied its burden of showing that the relevant decisions fall within the discretionary function exception, and Plaintiffs have not alleged any facts to the contrary.
4. Staff Members’ Personally Motivated Acts
Plaintiffs argue that SEC “staffers [] acted out of personal animus, unfounded fear of individual liability, and improper deference to Madoff on account of his reputation,” and that “one staffer ignored a whistleblower out of spite.” (Surreply at 8, citing Compl. ¶¶ 23, 97-99, 119, 121-22.)
All of these assertions strike at the manner in which the SEC conducted its investigations. As noted repeatedly in this Order, the SEC retained discretion to make policy-based decisions about the manner and scope of its investigations.
See
15 U.S.C. § 78u(a)(l) (permitting SEC to decide “as it deems necessary” how to “investigate any facts, conditions, practices, or matters,” whether through “a statement in writing, under oath or otherwise.”);
see also Vickers,
Plaintiffs’ allegations, taken as true, at most establish that the SEC staff abused its discretion when conducting investigations into Madoffs operations. However, the FTCA clearly states that the discretionary function applies “whether or not the discretion involved be abused.” 28 U.S.C. § 2680(a). In addition, Supreme Court precedent requires this Court to examine “the nature of the actions taken and [] whether they are susceptible to policy analysis,” not “the agent’s subjective intent in exercising the discretion conferred by statute or regulation.”
Gaubert,
Furthermore, the relevant question is not, as Plaintiffs suggest, whether the agents’ activities were actually “grounded in any legitimate policy considerations.” (Surreply at 9.) Rather, the question is whether the agents’ activities were susceptible to policy analysis.
See Gaubert,
5. Failing to Follow Case-Management Procedures
Plaintiffs next argue that the SEC “violated its own internal policies” regarding case-management by doing the following: (1) “failing to obey rules regarding the filing of reports and the use of the SEC’s STARS [Super Tracking and Reporting System] computer system,” (2) failing to consult the Super Tracking and Reporting *1046 System database before beginning examinations, (3) “fail[ing] to submit Matter Under Inquiry [ ] reports with respect to ... open investigations,” and (4) failing to file case-opening and case-closing reports. (Surreply at 7.)
Plaintiffs have adequately alleged that the SEC teams failed to conduct each of these tasks at one time or another. Plaintiffs have not, however, adequately alleged that these tasks were mandatory or were not otherwise susceptible to policy judgment. Because the SEC staff had broad discretion to determine how to conduct its investigations,
see supra
Part IV.B, Plaintiffs bear the burden of identifying plausible allegations that non-discretionary duties were imposed on the investigators.
See, e.g., Sabow,
a. Factual Allegations
In May 2003, the Washington-based Office of Compliance Inspections and Examinations received a tip and referred the matter to a team in the Broker-Dealer section. In December 2003, the Washington team received a second tip and opened its investigation into Madoff. According to Plaintiffs, the team failed to file case-opening report in the STARS computer system. (Compl. ¶ 80.) There is one allegation suggesting that case-opening report is mandatory: the Report quotes a supervisor’s statement that the staff members were “supposed to” enter their case-opening “information into the tracking system.” (Ex. A at 132, quoting McCarthy testimony.) The Washington team also failed to follow its case-planning memo. (Compl. ¶ 69.) There are no factual allegations, however, that there is a mandatory duty to follow a case-planning memorandum.
In April 2004, the Washington team closed its investigation and failed to file a case-closing memorandum. (Compl. ¶¶ 78, 80.) There is one allegation that the case-closing memo may have been mandatory: the Report quotes a supervisor’s statement that “[t]ypically, staff is supposed to— when they finish an examination] they’re supposed to close it out and I think there should have been a close-out memo is my understanding.” (Compl. ¶ 78 & n. 15, quoting Ex. A at 136 (quoting McCarthy testimony).)
At the same time that the Washington team closed its investigation (April 2004), the first New York enforcement team received a tip, and in December 2004 the New York team opened its investigation. (Compl. ¶ 86.) This team failed to draft a planning memorandum. (Compl. ¶¶ 87, 108.) Plaintiffs state in a conclusory fashion that there was an SEC “policy or practice” requiring such a memorandum, but support this assertion by citing to a factual statement in the Report that quotes staff members saying that there was not such a policy at the time of the investigation. (Compl. ¶ 87, citing Ex. A at 166.)
The New York team failed to consult the STARs computer system to see if any prior case-opening reports had been filed. (Compl. ¶¶ 103, 108.) There is no specific
*1047
allegation that there is a mandatory duty to check the computer system; however, Plaintiffs allege that SEC policy required that “there should never be two examinations of the same entity being conducted at the same time without both teams being aware . of each other’s examination.” (Compl. ¶ 103, quoting Ex. A at 132.) In the Ninth Circuit, the word “should” is generally viewed as suggestive rather than mandatory, see,
e.g., Sabow,
Plaintiffs further allege that the first New York team learned about the previous Washington examination while the New York team was interviewing Madoff in mid-to-late May 2005. (Ex. A at 195.) In early June 2005, the Washington team sent its files to the New York team, and the New York team performed a “cursory review” of the Washington team’s findings because the information “seemed so similar to what we [the New York team] were receiving in real time.” (Compl. H.105, quoting Ex. A at 200.) Plaintiffs allege that the two teams’ failures to fully communicate “resulted in embarrassment and a waste of Commission resources as two examination teams from two different offices essentially conducted the same examination.” (Ex. A at 142; see also Compl. ¶ 1 n. 3 (incorporating Report in its entirety into Complaint).)
In September 2005, the first New York team formally closed its investigation. In October 2005, after Harry Markopolos’s third report was referred from the Boston office, a different New York team began a new investigation into Madoff s operations. In December 2005, this second New York team filed its “Matter Under Inquiry” report. (Compl. ¶ 124.) The New York office received another tip about Madoff between the October 2005 opening of the investigation and the December 2005 filing of the Matter Under Inquiry report. (Compl. ¶ 125.) Plaintiffs allege that, had the Matter Under Inquiry been filed in October, this new tip would have been part of the second New York team’s investigation. (Compl. ¶ 125.) However, there are no factual allegations that SEC policy requires that a Matter Under Inquiry form be filed immediately, other than Plaintiffs’ conclusory allegations that this a “required step at the beginning of any Enforcement investigation.” (Compl. ¶ 124.) Contradicting this conclusory assertion, Plaintiffs’ Complaint contains specific factual assertions that, although the Matter Under Inquiry “should” have been opened sooner, the SEC’s enforcement manual states that staff members “may” file a Matter Under Inquiry if and when they determine that a complaint is “serious and substantial.” (Compl. ¶ 125, citing Ex. A at 263 (quoting SEC Enforcement Manual) (emphasis added).) Plaintiffs further allege that “it is unclear whether the tip would have made any difference in the conduct or the result of the [second New York team’s] investigation because ... of [the investigating attorney’s] view that anonymous tips, ‘on their face’ were not credible.” (Ex. A at 265; see also Compl. ¶ 1 n. 3 (incorporating Report in its entirety into Complaint).)
*1048 In June 2006, after completing its examination, the second New York team filed its case-closing report despite the fact that it had failed to resolve all of the red flags it identified. (Compl. ¶ 147.) However, there are no allegations that the SEC staff is required to resolve red flags before deciding to close a case and file a case-closing report. {See Compl. ¶ 147.)
b. Discussion and Analysis
In short, viewing the plausible inferences of the Complaint’s factual averments in favor of Plaintiffs, the Complaint alleges three acts that violated mandatory duties and/or were not susceptible to policy judgment:
(1) the Washington team failed to file a case-opening report;
(2) the first New York team failed to consult the STARs computer database to find prior case-opening reports regarding Madoff; and
(3) the Washington team failed to file a case-closing memorandum.
Plaintiffs’ other assertions are either unsupported by any factual allegations whatsoever 19 or are supported by factual allegations that plainly contradict Plaintiffs’ conclusory assertions that there was a mandatory duty and/or decision not susceptible to policy analysis. 20 Plaintiffs further allege that the three specific SEC omissions had an extremely limited impact. Plaintiffs assert that the New York team, prior to closing its investigation, received and reviewed the Washington files — albeit in a “cursory” manner because the information appeared duplicative of the New York team’s ongoing investigations. (Compl. ¶ 105, citing Ex. A at 200.)
Ultimately, then, Plaintiffs are alleging that two SEC offices violated mandatory policies and thereby failed to adequately coordinate their investigations and otherwise conduct their investigations in a thorough and adequate manner.
As has been shown repeatedly throughout this Order, the SEC retained discretion to decide how to conduct its investigations — which includes decisions about how to coordinate investigations between offices.
{See supra
Parts. IV.B.l, IV.B.3.) At the risk of being repetitive, it is useful to refer back to 15 U.S.C. § 78u(a)(l), which permits the SEC to decide “as it deems necessary” how to “investigate any facts, conditions, practices, or matters,” whether through “a statement in writing, under oath or otherwise.” In addition, 15 U.S.C. § 78u(d)(l) permits the SEC “in its discretion” to bring an enforcement action when it detects a securities violation during its investigations. There are, in short, no mandatory obligations requiring the SEC to conduct its investigations in a particular manner or to bring an enforcement action in particular situations. These decisions are fundamentally discretionary and require staff to make policy-based judgments.
See, e.g., Sloan,
In light of this broad investigatory discretion,
General Dynamics
is therefore directly on point regarding the small handful of mandatory procedural obligations imposed on SEC staff. In
General Dynamics,
the Ninth Circuit explained that an otherwise actionable agency decision is immune from suit if “a totally separate exercise” of “independent” and “broad based discretion” “intervenes between an alleged government wrongdoer and the harm suffered by a plaintiff.”
In contrast, in
Glacier Bay,
hydrographers prepared oceanographic charts pursuant to mandatory requirements stated in their handbook. They then presented these charts to their supervisor, who had discretion regarding whether or not to approve those charts. The court held that the supervisor’s limited exercise of discretion did not immunize the hydrographers’ negligent preparation of the charts in violation of mandatory guidelines. As the court later explained in
General Dynamics,
“little intervened between the hydrographers’ wrongdoing and the injury to the plaintiff.”
General Dynamics,
The allegations in the present case are far more analogous to the facts in General Dynamics than in Glacier Bay. Plaintiffs allege in essence that the first New York investigative team had a mandatory duty to be aware of the prior Washington investigation. Plaintiffs’ allegations are neatly summarized in a quotation in the Complaint: under SEC policy “there should never be two examinations of the same entity being conducted at the same time without both teams being aware of each other’s examination.” (Compl. ¶ 102, quoting Ex. A at 132, emphasis added by Court.) 21
However, even though these two teams’ conduct violated mandatory policies or otherwise involved non-judgment-based decisions, the discretionary function exception will apply if “a totally separate exercise” of “independent” and “broad based discretion” “intervenes between an alleged government wrongdoer and the harm suffered by a plaintiff.”
General Dynamics,
Each of these three acts by the New York team was a “totally separate exercise of discretion” that was unrelated to the investigators’ non-discretionary violations of mandatory case-management rules.
See General Dynamics,
In addition, the New York team, after conducting an independent and discretionary review of both Madoffs operations and the Washington team’s files, made an independent decision to close its investigation in September 2005 without bringing an enforcement action against Madoff. The decision of whether or not to bring an enforcement action is plainly discretionary.
See
15 U.S.C. § 78u(d)(l) (permitting SEC “in its discretion” to bring enforcement actions); 17 C.F.R. § 202.5 (stating that SEC “may in its discretion” select from various enforcement tools if it believes that enforcement action is necessary). Although FTCA claims most often involved negligent agency actions rather than failures to act, the New York team’s decision not to act was fully within its discretion in selecting the manner and scope of its investigations and enforcement actions.
See, e.g., Block v. SEC,
In short, General Dynamics applies to the allegedly negligent acts by the Washington team and the first New York team. The New York team’s intervening discretionary actions are closely analogous to the General Dynamics prosecutors’ actions in at least two ways:
(1) In General Dynamics, the prosecutors reviewed and relied on information contained in a negligently-conducted investigation when choosing to pursue a prosecution. Here, the first New York team reviewed the Washington team’s allegedly negligently-prepared files and the New York team relied (at least part) on those files in choosing to close the case without pursuing an enforcement action. In both cases, the second actor retained discretion to decide how thoroughly to rely on (or discredit) the underlying information re *1051 ceived from a previous investigation. In both cases, the second actor exercised that discretion: in General Dynamics, the prosecutors elected not to conduct a further investigation, and here, the New York team elected to conduct a “cursory” review of the Washington team’s files.
(2) In
General Dynamics,
the prosecutors retained discretion to conduct additional independent investigations before deciding whether or not to file a criminal action; they elected to file the action without seeking additional information beyond that contained in the auditing reports. Here, the first New York team retained discretion to conduct further investigations into Madoffs affairs before deciding whether or not to bring enforcement actions against Madoff. Unlike the prosecutors in
General Dynamics,
the New York team elected to conduct additional independent investigations beyond those contained in the Washington team’s files, and the New York team further elected to close its case without bringing an enforcement action.
22
The New York team in fact exercised greater discretion than the prosecutors in
General Dynamics
— the prosecutors in
General Dynamics
were presented with clear (albeit incorrect) evidence showing fraud; it does not exactly require “a robust exercise of discretion” to decide to prosecute that fraud.
Thus, the New York team’s actions — its affirmative choice to review the Washington team’s files; its affirmative choice to conduct additional investigations into Ma-doffs operations; and its affirmative choice not to bring an enforcement action — constituted intervening exercises of independent and broad-based discretion. Both the facts and holding of General Dynamics are directly on-point. As such, the discretionary function exception bars Plaintiffs’ claims regarding the Washington and New York investigators’ alleged failures to follow mandatory case-management procedures.
6. Conclusion Regarding Plaintiffs’ Purportedly Mandatory Duties
Plaintiffs have failed to identify any of the SEC’s non-discretionary acts that are actionable under Ninth Circuit precedent. As such, they have not rebutted the “strong presumption” established in the statutes, regulations, and caselaw in Defendant’s favor.
Gaubert,
V. PLAINTIFFS’ REQUEST TO CONDUCT DISCOVERY
Plaintiffs insist that as-yet-undiscovered internal policies and guidelines will reveal that the SEC’s actions violated clear mandatory rules. (Surreply at 9, 11.) However, Plaintiffs have not plausibly alleged any facts suggesting that such mandatory rules exist. In addition, Plaintiffs have failed to
*1052
identify the specific types of rules that are likely to exist. Finally, Plaintiffs have failed to consult the voluminous public record that might bolster their conclusory assertions or potentially contradict them. In short, Plaintiffs have failed to allege sufficient “facts to raise a reasonable expectation that discovery will reveal evidence” supporting their conclusory assertions.
Twombly,
A. LEGAL STANDARD
“[Wjhere pertinent facts bearing on the question of jurisdiction are in dispute, discovery should be allowed.”
Am. West Airlines, Inc. v. GPA Group, Ltd.,
In the FTCA immunity context, “[i]t is well-established that ‘the burden is on the party seeking to conduct additional discovery to put forth sufficient facts to show that the evidence sought exists.’ ”
Gager v. United States,
The Ninth Circuit applied
Twombly
to the discretionary function exception in
Doe v. Holy See,
Even prior to the Supreme Court’s re-articulation of the proper pleading requirements in
Twombly
and
Iqbal,
it was not unusual for courts to dismiss FTCA claims under the discretionary function exception without giving litigants an opportunity to conduct discovery.
See, e.g., Abreu v. United States,
B. DISCUSSION AND ANALYSIS
Additional discovery is not appropriate at present. Plaintiffs have not pleaded “enough facts to raise a reasonable expectation that discovery will reveal evidence of’ the sought-after SEC policies and guidelines.
Twombly,
that the evidence sought exists.”
Gager,
A salient analogy can be found in
Freeman v. United States,
Freeman is particularly apt because the plaintiffs in that case relied heavily “on numerous congressional investigations regarding the government’s response to Hurricane Katrina.” Id. at 342 n. 16. In the case before this Court, Plaintiffs rely almost exclusively on the SEC Office of *1054 Inspector General’s Report. Plaintiffs have done nothing more than read a small portion of the voluminous public record regarding the relevant factual issues.
Notably, Plaintiffs have not shown that the relevant information is unavailable to them in the absence of discovery. To the contrary, the SEC Inspector General has issued a follow-up report that specifically examines the Office of Compliance Inspections and Examinations’s “modules, policies, procedures and guidance associated with the conduct of its examinations” into Madoffs conduct. The Court further notes that countless other relevant documents are readily available through the SEC’s website.
Accordingly, Plaintiffs’ request for discovery is denied.
VI. LEAVE TO AMEND THE COMPLAINT
When a court grants a motion to dismiss, the court may grant the plaintiff leave to amend a deficient claim “when justice so requires.” Fed.R.Civ.P. 15(a)(2). The plaintiff need not specifically request leave to amend.
Doe v. United States,
It is disfavored to prevent a plaintiff from amending the complaint at least once, and Defendant has not introduced any evidence showing that amendment would be entirely futile. Accordingly, Plaintiffs are granted 30 days to amend their Complaint and incorporate plausible factual allegations showing that the SEC failed to conform to its mandatory duties.
Plaintiffs are cautioned that an amended complaint supercedes a previous complaint.
See, e.g., Hal Roach Studios, Inc. v. Richard Feiner & Co.,
While preparing the amended complaint, Plaintiffs are advised that Fed.R.Civ.P. 11(b) requires that the factual allegations be made “to the best of the person’s knowledge, information, and belief, formed *1055 after an inquiry reasonable under the circumstances.” Obviously this rule does not require Plaintiffs’ amended complaint to contain factual support of the type required in a Rule 56 summary judgment motion. But in the present context, in order for Plaintiffs’ pre-filing “inquiry” to be “reasonable under the circumstances,” they are expected to make a good faith examination of the publicly available documents and allege only those facts that are reasonably likely to find evidentiary support during discovery. Plaintiffs shall refrain from submitting additional conelusory allegations regarding unnamed “policies and practices.” Plaintiffs shall also refrain from submitting new allegations that are contradicted by facts stated in any of the SEC’s Office of Inspector General reports unless Plaintiffs can also plausibly allege that such reports are inaccurate or incomplete. Plaintiffs shall identify, to the best of their ability, the specific type of conduct governed by the alleged policies and the specific time period during which the policies were effective.
Plaintiffs are advised that if they are unable to make a sufficient good faith inquiry within 30 days, their action will be dismissed without prejudice for lack of subject matter jurisdiction.
See Frigard v. United States,
VII. CONCLUSION
Accordingly, Defendants’ Motions to Dismiss for lack of subject matter jurisdiction are GRANTED. Plaintiffs may file an amended complaint containing new allegations that are reasonably aimed at satisfying Plaintiffs’ burden as described in this Order. If Plaintiffs choose to file an amended complaint, the amended complaint must be filed within 30 days of the date that this Order is entered on the docket. Should Plaintiffs fail to file an amended complaint, the action will be dismissed without prejudice for lack of subject matter jurisdiction.
IT IS SO ORDERED.
Notes
. The plaintiffs are:
-Dichter-Mad Family Partners, LLP (a Florida partnership represented by attorney Philip Dichter, an investor in the partnership),
-Philip Dichter (who is a lawyer representing himself),
-Claudia Gvirtzman Dichter (represented by Philip Dichter), and
-Richard M. Gordon (who is a lawyer representing himselQ.
. There are, of course, various other requirements and exceptions in the FTCA. This brief summary only relates to the matter at issue here — the discretionary function exception.
. This Order refers to the Office of Inspector General’s report as "the Report,” and pin-citations to the Report are abbreviated as “Ex. A.”
. In full, the email stated: "As we discussed, after reviewing the complaint received (via the [Boston office]) from Harry Markopol[o]s of Rampart Investments about purported performance claims for funds managed by Bernard Madoff, and some information about Madoff and others identified in the complaint, I don't think we should pursue this matter further.” (Ex. A at 72.)
. Front-running is the practice in which a "broker executfes] orders on a security for its own account while taking advantage of advance knowledge of pending orders from its customers." (Compl. ¶ 66.) See also Black’s Law Dictionary 739 (9th ed. 2009) (defining term in similar manner).
. One examiner later wrote that "[i]n early 2004, [the Office of Compliance Inspections and Examinations] made it a priority to examine mutual funds' undisclosed payments to broker-dealers,” (Ex. A at 125, quoting July 1, 2009 letter from Lori Richards to Inspector General David Kotz), and contemporary records confirm this. (Ex. A at 125-26.)
. "[C]herry-picking is generally a scheme in which trades, once they are determined to be favorable, are allocated to a favored account at the expense of other accounts.” (Ex. A at 146 n. 92.)
. One of the investigators explained that he interpreted the initial complaint and referral as suggesting that the investigation "focus exclusively on whether Madoff was using his market making capability to cherry pick trades or to front run market making trades for the benefit of his hedge fund clients.” (Ex. A at 167, paraphrasing testimony of John Nee.) Another team members explained that "he focused on abusive trading practices rather than the other issues raised in the [referral] e-mail, in part, because order leakage was a prominent issue at the time of the examination.” (Ex. A at 168, paraphrasing testimony of Robert Sollazzo.)
. Gordon's "Opposition” brief is 37-pages long, well above the 25-page limit set by this Court. In addition, Gordon did not file his substantive brief with this Court until March 1, which was one week later than the deadline set by this Court’s Local Rules. The Court accordingly STRIKES Gordon’s Opposition. However, as the document raises the same issues as are raised in Plaintiffs’ joint Opposition and Sur-Reply (which the Court has considered despite its procedural irregularities), the Court has addressed all the issues raised in Gordon’s stricken submission.
. Although the present motion is a motion to dismiss for lack of jurisdiction under Fed. R. Civ. 12(b)(1) rather than a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), motions to dismiss on jurisdictional grounds are governed by the standard pleading rules of Fed.R.Civ.P. 8(a).
See Doe v. Holy See,
*1026
In the only
post-Twombly
circuit court to address pleading standards in the FTCA context, the Fifth Circuit cited
Twombly
as the operative standard governing a jurisdictional dispute like the present one.
Castro v. United States,
. The court also noted, however, that the presence of a discretionary final review might affect the merits of the claim because the plaintiff would be unable to show that the negligent acts proximately caused the plaintiff's harm.
Id.
(citing
Routh v. United States,
. The summaries of these cases are drawn from
Jerome Stevens Pharma., Inc. v. Food & Drug Admin.,
. Plaintiffs explain that " 'policies' refer[s] to formal or informal policies, rules, standards, guidelines, procedures, codes, routines or other directives implemented by the SEC to govern the conduct of its agents.'1 (Compl. ¶ 4 n. 4.) " 'Practices' refers to common-sense standards of conduct required of SEC agents in the course of exercising their duties with reasonable due care, regardless of whether the SEC had promulgated any formal or informal policies with respect to that conduct.” {Id..)
Under Gaubert, Plaintiffs' "practices" are clearly an inadequate basis for showing a mandatory SEC duty.
. Technically, Doe v. Holy See involves the Foreign Sovereign Immunities Act rather than the FTCA, but, as noted supra, the court solely examined FTCA caselaw.
. The Court never granted Plaintiffs leave to file a sur-reply. Nor did the Court grant Plaintiffs leave to file an oversized brief. In addition, the sur-reply goes far beyond the scope of the arguments raised in the Government's Reply. Even if the Court had granted Plaintiffs leave to file an oversized sur-reply, Plaintiffs would only have been allowed to address Defendant’s specific arguments in the Reply. Plaintiffs' sur-reply is therefore procedurally improper.
It is therefore well within the Court's discretion to strike the surreply. However, while the Court would ordinarily strike such an improper filing, the Court will consider the merits of Plaintiffs’ arguments in order to foreclose certain of these claims in future proceedings.
. "For purposes of this subsection, the term 'examining authority' means a self-regulatory organization registered with the Commission under this chapter (other than a registered clearing agency) with the authority to examine, inspect, and otherwise oversee the activities of a registered broker or dealer.” 15 U.S.C. § 78q(k)(5).
. As part of the compromise, the revised law required that the SEC coordinate its activities with the self-regulatory organizations (whereas the old bill merely required the self-regulatory organizations to coordinate their activities). Compare 15 U.S.C. § 78q(k)(2) (“The Commission and the examining authorities shall share ...") with H.R. 3005, *1043 § 108(a)(4)(A) in H.R. Rep. 104-622 ("The examining authorities shall share ...”).
. To the extent that SEC staff members were truly acting for personal purposes, such activities would not constitute a "negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment,” and the FTCA would not provide an avenue for recovery. 28 U.S.C. § 1346(b)(1) (emphasis added).
. There are no specific allegations stating that there was a requirement to follow a case-planning memorandum. Nor are there specific allegations stating that there was a requirement to resolve red flags prior to closing a case and preparing a case-closing memorandum.
. Plaintiffs' conclusory assertions that there were mandatory duties are contradicted by their specific allegations in the Report that there was no policy requiring staff to prepare a case-planning memorandum and there was a discretionary policy (which used the suggestive "should” and the permissive "may,”
see Sabow,
. Again, the Court notes that the word "should” is suggestive rather than mandatory and officials' subjective beliefs are insufficient evidence of a mandatory policy. However, at the present stage of proceedings, plausible inferences in the Complaint must be drawn in Plaintiffs’ favor. This quotation, combined with the other factual allegations discussed supra, provide a plausible inference that these particular case-management obligations were mandatory.
. Even though Plaintiffs allege that the New York team's review of the Washington team's files was "cursory,” the
General Dynamics
court clearly explained that it is inappropriate to consider the thoroughness or accuracy of an intervening exercise of "broad based discretion.”
See
. The D.C. Circuit's Ignatiev opinion requires that district courts in that Circuit allow FTCA plaintiffs an opportunity to pursue limited discovery to determine whether or not internal agency guidelines mandate staff members to take a particular course of action. It is unclear whether Ignatiev's bright-line rule survives post-Twombly and -Iqbal, both of which state that something more than a conclusory allegation is required to obtain discovery. As the Supreme Court explained in Iqbal:
Respondent ... implies that our construction of Rule 8 should be tempered where, as here, the Court of Appeals has "instructed the district court to cabin discovery in such a way as to preserve” petitioners’ defense of qualified immunity "as much as possible in anticipation of a summary judgment motion.” Iqbal Brief 27. We have held, however, that the question presented by a motion to dismiss a complaint for insufficient pleadings does not turn on the controls placed upon the discovery process. Twombly, [550 U.S.] at 559,127 S.Ct. 1955 ("It is no answer to say that a claim just shy of a plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through careful case management given the common lament that the success of judicial supervision in checking discovery abuse has been on the modest side.”).
Iqbal,
. Given the voluminous nature of the original complaint, the Court grants Plaintiffs permission to incorporate their original allegations by reference into the amended complaint. The Court anticipates, however, that the "law of the case” doctrine may preclude reconsideration of the specific allegations addressed in the present Order.
See, e.g., United States v. Smith,