Dennis J. DONAHUE, Jr., et al., Plaintiffs v. UNITED STATES of America, Defendant.
Civil Action No. 10-0128 (PLF).
United States District Court, District of Columbia.
June 19, 2012.
870 F.Supp.2d 97
PAUL L. FRIEDMAN, District Judge.
E. Fees and Costs Awarded
The amount of fees and costs requested by Plaintiff is $4,444.75. The legal fees claimed were based on 4.0 hours billed at $475.00/hour, 3.0 hours billed at $268.00/hour, .75 hour billed at $275.00/hour, 1.5 hours billed at $146.00/hour, and 3.25 hours billed at $150.00/hour. This Court has determined that hourly rates based on 75% of the Laffey Matrix rate are applicable, which means that 4.0 hours are billed at $236.00/hour, 3.0 hours are billed at $161.00/hour, .75 hour is billed at $169.00/hour, 1.5 hours are billed at $94.00/hour and 3.25 hours are billed at $98.00/hour. Total fees thus equal $2,013.25 and total costs equal $84.00, resulting in an award of $2,097.25.
Dennis J. Donahue, Jr., Isle of Palms, SC, pro se.
Rosalea V. Donahue, Isle of Palms, SC, pro se.
Lawrence M. Farrell, Haymarket, VA, pro se.
Philip Davis MacWilliams, Jeffrey Paul Ehrlich, United States Department of Justice, Washington, DC, for Defendant.
PAUL L. FRIEDMAN, District Judge.
This matter is before the Court on the defendant‘s motion to dismiss the plaintiffs’ complaint for lack of subject matter jurisdiction. After careful consideration of the parties’ papers, the attached exhibits, and the relevаnt statutes and case law, the Court granted the defendant‘s motion by Order dated March 26, 2012, and dismissed the case with prejudice. This Opinion explains the reasoning underlying that Order.1
I. BACKGROUND
Plaintiffs Dennis Donahue, Jr., Rosalea Donahue, and Lawrence Farrell are former investors in, and victims of, the infamous Bernard Madoff Ponzi scheme. Compl. ¶ 1. The plaintiffs brought suit under the Federal Tort Claims Act,
The plaintiffs rely for the factual assertions of their complaint on an investigative report issued in 2009 by the SEC‘s Office of the Inspector General (“OIG Report“) cataloguing the agency‘s myriad failures in investigating Madoff‘s enterprise over the years. Compl. ¶ 1. Drawing on the OIG Report, the plaintiffs allege that between 1992 and 2008 the SEC received numerous complaints and other indications related to Madoff‘s brokerage firm that credibly indicated he may have been engaged in fraud. Although the SEC conducted two examinations and three investigations in response to the information it received, each was fraught with grave errors that prevented the discovery of Madoff‘s fraud. Id. ¶ 15. As the OIG Report concludes:
The OIG investigation found that the SEC received numerous substantive complaints since 1992 that raised significant red flags concerning Madoff‘s hedge fund operations and should have led to questions about whether Madoff was actually engaged in trading and should have led to a thorough examination and/or investigation of the possibility that Madoff was operating a Ponzi scheme. However, the OIG found that although the SEC conducted five examinations and investigations of Madoff based upon these substantive complaints, they never took the necessary and basic steps to determine if Madoff was misrepresenting his trading. We also found that had these efforts been made with appropriate follow-up, the SEC could have uncovered the Ponzi scheme well before Madoff confessed.
The OIG found that the conduct of the examinations and investigations was similar in that they were generally conducted by inexperienced personnel, not planned adequately, and were too limited in scope. While examiners and investigators discovered suspiciоus information and evidence and caught Madoff in contradictions and inconsistencies, they either disregarded these concerns or relied inappropriately upon Madoff‘s representations and documentation in dismissing them. Further, the SEC examiners and investigators failed to understand the complexities of Madoff‘s trading and the importance of verifying his returns with independent third parties.
Compl. ¶ 113 (quoting OIG Report at 456-57); see id. ¶¶ 32-159 (detailing at length the OIG Report‘s findings about the SEC‘s botched oversight of Madoff); see also Dichter-Mad Family Partners, LLP v. Unit-ed States, 707 F.Supp.2d 1016, 1020-24 (C.D.Cal.2010) (providing concise summary of the OIG Report‘s main findings).
When Madoff‘s Ponzi scheme collapsed, plaintiffs Dennis and Rosalea Donahue lost $774,000 that they had invested in a Madoff “feeder fund” known as MOT Family Investing, and plaintiff Lawrence Farrell lost over $1.4 million that he had invested in that fund. Compl. ¶ 10. The plaintiffs allege that the SEC negligently delegated inquiries about Madoff to SEC teams that lacked expertise in financial fraud; assigned critical tasks to inexperienced junior staffers who lacked relevant training or experience; failed to contact third parties to confirm Madoff‘s сlaimed trading activities; and allowed “inter-office rivalries” and awe at Madoff‘s prestige to impair its investigations. Id. ¶ 6. The plaintiffs further allege that SEC employees repeatedly violated the agency‘s policies by failing to comply with protocol for the opening and closing of investigations and for the sharing of information among offices and teams. Id. ¶¶ 6, 12, 109, 130.
Through these manifold failures, the plaintiffs contend, the SEC breached a duty of care to the plaintiffs and other investors in Madoff‘s enterprise. Compl. ¶ 2. The agency purportedly owed such a duty to these investors “because it was reasonably foreseeable that they would rely on the SEC to remove the danger posed by Madoff if the SEC had information confirming the existence of that danger.” Id. The SEC‘s breach of this duty proximately caused the plaintiffs’ injuries, they contend, because those injuries “were the natural, probable, and foreseeable outcome of the SEC‘s failure to terminate Madoff‘s Ponzi scheme despite its multiple opportunities to do so.” Id. The plаintiffs further contend that the SEC‘s failed investigatory efforts caused the agency to breach a duty to warn investors that Madoff was engaged in a Ponzi scheme. Opp. at 6.
Claims nearly identical to the plaintiffs’ have been brought by other victims of Madoff‘s fraud in at least three other district courts; each complaint has been dismissed for lack of subject matter jurisdiction under the discretionary function exception to the FTCA. See Baer v. United States, No. 11-1277, 2011 WL 6131789 (D.N.J. Dec. 8, 2011); Molchatsky v. United States, 778 F.Supp.2d 421 (S.D.N.Y.2011); Dichter-Mad Family Partners, LLP v. United States, 707 F.Supp.2d 1016 (C.D.Cal.2010). As explained below, the Court agrees with the reasoning of those decisions and concludes that it lacks jurisdiction over the plaintiffs’ claims.
II. STANDARD OF REVIEW
Federal courts are courts of limited jurisdiction, with the ability to hear only cases entrusted to them by a grant of power contained in either the Constitution or in an act of Congress. See, e.g., Beethoven.com LLC v. Librarian of Congress, 394 F.3d 939, 945 (D.C.Cir.2005); Tabman v. FBI, 718 F.Supp.2d 98, 100 (D.D.C.2010); Hunter v. District of Columbia, 384 F.Supp.2d 257, 259 (D.D.C.2005). On a motion to dismiss for lack of subject matter jurisdiction under
III. DISCUSSION
A. The Discretionary Function Exception to the FTCA
The United States is immune from suit unless it waives its sovereign immunity through an act of Congress. See F.D.I.C. v. Meyer, 510 U.S. 471, 475, 114 S.Ct. 996, 127 L.Ed.2d 308 (1994). The Federal Tort Claims Act provides such a waiver in сivil damages actions based on
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.
The FTCA provides that the jurisdiction given to district courts under
The Supreme Court has established a two-part test for determining whether government conduct challenged by a plaintiff falls within the discretionary function exception. See United States v. Gaubert, 499 U.S. at 322-23, 111 S.Ct. 1267 (citing Berkovitz v. United States, 486 U.S. at 536-37, 108 S.Ct. 1954). First, a court must look to the nature of each act and whether it involves an “element of judgment or choice.” Id. at 322, 111 S.Ct. 1267 (quoting Berkovitz v. United States, 486 U.S. at 536, 108 S.Ct. 1954). When a “federal statute, regulation, or policy specifically prescribes a course of action,” there is no judgment or choice involved, and the discretionary function exception does not apply, because “the employee has no rightful option but to adhere to the directive.” Id. (quoting Berkovitz v. United States, 486 U.S. at 536, 108 S.Ct. 1954).
Second, if the challenged acts do involve an element of judgment or
So long as the act in question satisfies the two-part test described above, the discretionary function exception applies regardless of the rank or position of the government employee responsible for the decision: “[I]t is the nature of the conduct, rather than the status of the actor,’ that governs whether the exception applies.” United States v. Gaubert, 499 U.S. at 322, 111 S.Ct. 1267 (quoting United States v. Varig Airlines, 467 U.S. at 813, 104 S.Ct. 2755).
B. The SEC‘s Investigatory Discretion
In conferring power on the SEC to investigate securities law violations under the Securities Exchange Act of 1934, Congress has explicitly made the agency‘s use of that power discretionary:
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.... The Commission is authorized in its discretion, to publish information concerning any such violations, and to investigate any facts, conditions, practices, or matters which it may deem necessary or proper to aid in the enforcement of such provisions.
As other courts have recognized, it could not be more clear that the SEC‘s broad power to conduct investigations into securities law violations is discretionary in nature. Moreover, “[w]hatever else the discretionary function exception may in-
The plaintiffs acknowledge the challenge to their lawsuit posed by the discretionary function exception and have preemptively contested the applicability of that exception in their complaint itself. According to the plaintiffs, the exception does not apply here because “those members of the SEC who investigated Madoff from time to time were not crafting policy or making rules. Rather, the SEC staff was carrying out their usual and regular obligations to review and investigate its registrants and рotential wrongdoing[.]” Compl. ¶ 3; see id. ¶ 14 (“Nor did the misconduct of the SEC staff have anything to do with rule-making or policy analysis and implementation.“). But the Supreme Court has long rejected the notion that acts by lower level employees are unprotected by the discretionary function exception merely because those employees are not involved in “crafting policy or making rules.” Compl. ¶ 3. See Dalehite v. United States, 346 U.S. 15, 36, 73 S.Ct. 956, 97 L.Ed. 1427 (1953) (“Where there is room for policy judgment and decision there is discretion. It necessarily follows that acts of subordinates in carrying out the operations of government in accordance with official directions cannot be actionable.“). As explained in Gaubert, the exception covers not only “planning-level decisions establishing programs” and “the promulgation of regulations” but also “the actions of Government agents involving the necessary element of choice and grounded in the social, economic, or political goals of the statute and regulations.” United States v. Gaubert, 499 U.S. at 323, 111 S.Ct. 1267; see United States v. Varig Airlines, 467 U.S. at 813, 104 S.Ct. 2755 (“[I]t is the nature of the conduct, rather than the status of the actor, that governs whether the discretionary function exception applies in a given case.“); Sloan v. U.S. Dep‘t of Housing and Urban Dev., 236 F.3d 756, 764 (D.C.Cir.2001) (stating that the discretionary function test “is not limited to actions taken at the policy-planning level“).
Actions taken by SEC staffers pursuant to their investigatory responsibilities are exempt from the FTCA if they satisfy the
With respect to the second half of the test—whether these discretionary acts “arе of the nature and quality that Congress intended to shield from tort liability,” Cope v. Scott, 45 F.3d at 448 (quoting United States v. Varig Airlines, 467 U.S. at 813, 104 S.Ct. 2755)—the Supreme Court has stated 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 regulation.” United States v. Gaubert, 499 U.S. at 324, 111 S.Ct. 1267. Significantly, the regulations under which SEC investigators operate entail a level of discretion comparable to that of the enabling statute:
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 authоrize the use of process as it deems necessary.
In light of the statutory and regulatory framework governing SEC investigations, the only way for the plaintiffs to establish subject matter jurisdiction in this case is to identify acts or omissions of SEC investigators that satisfy one of two criteria. First, they may show that the conduct to which the plaintiffs trace their injuries was mandatory by virtue of some rule, regulation, or policy not subject to judgment and choice. In other words, SEC employees must have failed to follow “specific directions,” such that “in those instances, there was no room for choice or judgment.” United States v. Gaubert, 499 U.S. at 324, 111 S.Ct. 1267 (citing Berkovitz v. United States, 486 U.S. at 542-43, 108 S.Ct. 1954); see id. (“If the employee violates the mandatory regulation, there will be no shelter from liability because there is no room for choice and the action will be contrary to policy.“). Or, second, the plaintiffs may “allege facts which would support a finding that the challenged actions are not the kind of conduct that can be said to be grounded in the policy of the regulatory regime.” Id. at 324-25, 111 S.Ct. 1267. This option presents a high hurdle, because “[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
As discussed in the next section, the plaintiffs have failed to identify any acts or omissions that satisfy either criterion. None of the challenged decisions violated any mandatory duty, and each represents conduct grounded in policy considerations. None of these acts or omissions, therefore, can lead to FTCA liability or create subject matter jurisdiction in this Court.
C. The Challenged Acts and Omissions
Although the plaintiffs’ complaint emphasizes the SEC‘s “failure to terminate Madoff‘s Ponzi scheme” and to “stop the Ponzi scheme,” Compl. ¶¶ 1-2, the plaintiffs cannot hope to prevail on any claim that is grounded on the SEC‘s failure to initiate civil proceedings against Madoff. “The decision to initiate a prosecution has long been regarded as a classic discretionary function,” Sloan v. U.S. Dept. of Hous. & Urban Dev., 236 F.3d at 760, and this discretion extends beyond criminal prosecutions to encompass the initiation of administrative proceedings, id., and civil actions as well—including those commenced by the SEC. See Bd. of Trade of City of Chicago v. S.E.C., 883 F.2d 525, 530-31 (7th Cir.1989) (explaining that prosecution under the Securities Exchange Act is “discretionary, not mandatory“). An agency‘s decision not to initiate civil proceedings is of course equally discretionary. Id. at 530 (“Refusal to prosecute is a classic illustration of a decision committed to agency discretion ... [and such decisions] are presumptively non-reviewable.“). Apparently recognizing this imрediment to their success, the plaintiffs claim that “the negligent failures of the SEC staff prevented the matter ever from getting to SEC enforcement decision makers,” Opp. at 6, and that the plaintiffs were “harmed directly by the failure of the SEC to warn [them] and others that Mr. Madoff was not performing trades as he said he was and was engaged in a Ponzi scheme.” Id.
The government responds, in effect, that negligent investigations by the SEC can never give rise to liability under the FTCA: because SEC employees conduct investigations only “to assist the Commission in deciding whether to commence civil proceedings against suspected violators“—a prosecutorial decision that is shielded from FTCA liability—claims based on the negligent performance of such investigations are barred by the discretionary function exception. That is so, according to the government, because the investigations are inseparable from the decision whether to prosecute. Def. Mem. at 9.
The case law cited by the government does not support this categoricаl argument. In each case cited—where a negligent investigation was held immune from FTCA liability—the direct cause of the plaintiff‘s injury was not the investigation itself, but rather a criminal prosecution, administrative action, or other adverse proceeding initiated by the agency. These cases simply hold that where an agency‘s decision to take adverse action is shielded from liability by the discretionary function exception, the plaintiff cannot circumvent that obstacle by attacking the negligence of an underlying investigation that prompted the action. See, e.g., Sloan v. U.S. Dep‘t of Housing and Urban Dev., 236 F.3d at 761-62 (where the allegation of improper investigatory conduct is “inextricably tied” to the decision to prosecute and to presentation of evidence, the discretionary function exception applies and the government is immune); General Dynamics Corp. v. United States, 139 F.3d 1280, 1283-85 (9th Cir.1998); Fisher Bros. Sales, Inc. v. United States, 46 F.3d 279, 285-87 (3d Cir.1995) (en banc).
In this case ... the challenged investigation is inextricably tied to the discretionary, quasi-prosecutorial decision to suspend plaintiffs from governmental contracting. The complaint does not allege any damages arising from the [improper or negligent] investigation itself, but only harm caused by the suspension to which it assertedly led. At oral argument, plaintiffs were given a further opportunity to disentangle the investigation and suspension by proffering an amendment to the complaint that would allege some harm arising from the investigation that was separate from the suspension itself; they were unable to do so. Because the allegedly improper investigation thus caused no injury “distinct from the harm caused by the ultimаte prosecution itself,” the former is not “sufficiently separable from [the] protected discretionary decision[]” and “cannot by itself support suit under the FTCA.”
Sloan v. U.S. Dep‘t of Housing and Urban Dev., 236 F.3d at 762 (quoting Gray v. Bell, 712 F.2d 490, 515 (D.C.Cir.1983)) (internal citations omitted).
As explained above, however, the plaintiffs in this case can succeed only by identifying SEC conduct that violated compulsory duties or was not susceptible to policy analysis. See supra at 105-08. Put another way, “to survive a motion to dismiss in this area, a complaint must either allege facts demonstrating that the challenged actions are not grounded in public policy considerations or base its claims on government agents’ mandatory obligations.” Ignatiev v. United States, 238 F.3d at 466. “Otherwise the court will presume that the challenged acts are discretionary public-policy decisions and not amenable to suit.” Id. at 466-67. Accordingly, in opposing the dismissal of their case, the plaintiffs point to acts and omissions of SEC employees during the Madoff inquiries that, in the plaintiffs’ view, violated mandatory duties or were not susceptible to policy analysis.
The plaintiffs contend that these acts and omissions are not protected by the discretionary function exception because they (1) violated the Securities Exchange Act of 1934 itself; (2) violated internal policies of the SEC; (3) violated professional standards for the conduct of financial investigations; or (4) fell outside any permissible range of conduct. See Opp. at 16-17, 27-32, 34-36. As discussed below, however, none of the conduct identified by the plaintiffs violated a non-discretionary duty, and all of the challenged decisions are susceptible to policy analysis. The plaintiffs’ complaint, therefore, cannot survive the government‘s motion to dismiss.
1. Violation of the Securities Exchange Act of 1934
The plaintiffs first contend that SEC investigators violated
The Commission and the examining authorities shall share such information, 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.
Attempting to counter the obvious implications of the words “as appropriate,” the plaintiffs point to the OIG Report, which notes that, in several instances, information-sharing that was not performed would have been appropriate. Opp. at 27. The plaintiffs suggest that these findings establish that the investigators lacked discretion not to share information. But a post-hoc determination by the OIG about the appropriateness of sharing particular information does not constitute a mandatory requirement that the information be shared by the investigators. The FTCA exempts claims that are based on the performance of a discretionary function “whether or not the discretion involved be abused.”
erred in determining whether it was appropriate to share certain information, not that the investigators lacked the authority to make that discretionary determination. Moreover, it is perfectly evident—for purposes of the second half of the discretionary function test—that discretion to share information “as appropriate to foster a coordinated approach to regulatory oversight” requires SEC staff to make policy determinations about the proper relationship among examiners; such discretionary policy determinations are shielded from FTCA liability. The plaintiffs therefore have not allеged the violation of any compulsory statutory duties or identified any conduct here that is not susceptible to policy considerations.
2. Violation of Internal SEC Policies
The plaintiffs next contend that SEC investigators breached several mandatory policies of the agency. Specifically, they assert that SEC policies required investigators to open a matter under inquiry (“MUI“) at the beginning of each enforcement investigation, to generate planning memoranda to guide their inquiries, and to facilitate information sharing by opening and closing cases in the agency‘s STARS case-tracking system. See Compl. ¶¶ 93, 109, 130; Opp. at 27-29. The agency‘s adoption of these internal procedures, according to the plaintiffs, had the effect of making those steps mandatory for subordinate employees and thus non-discretionary within the meaning of the FTCA. See Opp. at 27-28. But the plaintiffs fail to demonstrate “that these tasks were mandatory or were not otherwise susceptible to policy judgment.” Dichter-Mad Family Partners, LLP v. United States, 707F.Supp.2d at 1046 (rejecting similar internal policy claims).
The plaintiffs rely on statements in the OIG Report that investigators “should have” logged infоrmation into STARS, and that “[t]he failure to properly track the examination and coordinate among offices resulted in embarrassment and a waste of Commission resources as two examination teams from two different offices essentially conducted the same examination.” OIG Report at 142. While the Report criticizes staffers’ failure to adhere to case-tracking procedures that examiners acknowledged they “should use,” id. at 132, it notably does not identify any specific policies—as opposed to best practices—that these omissions violated. To the contrary, in the passage of the OIG Report that the plaintiffs assert reveals a mandatory policy of logging information into STARS, see Compl. ¶ 109, the Report indicates that “there was no rule or policy about” information-sharing between SEC offices, despite the fact that sharing information through STARS could have prevented the type of problems that plagued the Madoff inquiries. OIG Report at 133.
Similarly, in the section of the OIG Report cited by the plaintiffs for their assertion that opening a MUI is “a required step at the beginning of any Enforcement investigation,” Compl. ¶ 130, the Report instead quotes the SEC‘s Enforcement Manual, which states that “complaints that appear to be serious and substantial are usually forwarded to staff in the home office ... and may result in the opening of a MUI.” OIG Report at 263 n. 183 (emphasis added). The Report also includes one SEC employee‘s testimony that she “learn[ed] shortly after she joined the SEC that sometimes a MUI was not opened ‘if it was clear so quickly that we did not—it wouldn‘t be something we pursued.‘” Id. at 263. Regardless of wheth-er SEC investigators misjudged whether the Madoff-related complaints warranted opening a MUI, the investigators undeniably were exercising judgment and choice over a matter entrusted to their discretion when making those determinations.
The plaintiffs also allege that when the SEC‘s Northeast Regional Office (“NERO“) belatedly started examining Madoff, the office “did not even draft a Planning Memorandum to guide [its] investigation, in violation of SEC policy and practice.” Comрl. ¶ 93 (citing OIG Report at 166). In fact, the section of the Report cited by the plaintiffs on this point demonstrates the lack of any policy regarding the drafting of planning memoranda:
Unlike the [Office of Compliance Inspections and Examinations] examination team, the NERO examination team did not draft a planning memorandum laying out the scope of the examination. Lamore recalled that at the time of the examination, NERO might not have had a practice of writing planning memoranda. Ostrow agreed, explaining ... that a formalized process was not in place for determining the focus of an examination[.]
OIG Report at 166 (internal citations omitted).
In sum, the OIG Report “describes no mandatory case-opening, case-management, or other administrative or investigative protocols,” Molchatsky v. United States, 778 F.Supp.2d at 433, and the plaintiffs have not demonstrated the existence of any “mandatory obligations requiring the SEC to conduct its investigations in a particular manner or to bring an enforcement action in particular situations.” Dichter-Mad Family Partners, LLP v. United States, 707 F.Supp.2d at 1048. Absent such mandatory obligations, SEC investigators tasked with “the sifting of evidence, the weighing of its signifi-
3. Violation of Professional Standards
The plaintiffs’ next theory is based on the SEC‘s alleged deviation from professional standards for the conduct of competent financial investigations. Opp. at 30-32. Relying again on the OIG Report, the plaintiffs assert that SEC staff “failed to follow applicable audit plans, failed to modify these audit plans in the face of changing circumstances, failed to seek necessary approval from superiors for these modifications, [and] failed to seek third-party verification of trading activity alleged by Mr. Madoff to have occurred.” Id. at 30 (citing Compl. ¶¶ 13, 14, 164-66, 171).
As a threshold matter, the plaintiffs have not dеmonstrated that a government employee‘s lack of adherence to professional standards can constitute the violation of a non-discretionary duty under the FTCA. In support of such a proposition, the plaintiffs cite General Dynamics Corp. v. United States, No. 89-6762, 1996 WL 200255 (C.D.Cal. Mar. 25, 1996), rev‘d 139 F.3d 1280 (9th Cir.1998), in which the district court held the United States liable for the professional malpractice of the Defense Contract Audit Agency in performing an audit that fell below professional standards. See Opp. at 30-31. The Ninth Circuit, however, reversed the district court upon concluding that General Dynamics’ injury was not caused by the audit itself but rather by the Justice Department‘s decision to criminally prosecute the company, a discretionary function for which the United States was immune from suit. General Dynamics Corp. v. United States, 139 F.3d at 1280. Decisions to prosecute are shielded from FTCA liability by the discretionary function exception, and although the Justice Department‘s decision was influenced by the negligently performed audit, the Ninth Circuit held that General Dynamics could not avoid this barrier by directing its lawsuit toward the negligence of the auditing agency. Id. at 1283-85.
The plaintiffs contend that had the court of appeals in General Dynamics Corp. not found the audit to be inextricably intertwined with the decision to prosecute, the case would stand for the proposition that professional standards constitute non-discretionary obligations, the violation of which engenders FTCA liability. It is telling that the plaintiffs cite no case in support of their position other than the district court decision overruled by the Ninth Circuit.
Even in the context of audits, our own circuit has rejected a much stronger argument for FTCA liability than that offered by the plaintiffs. In Sloan v. U.S. Dep‘t of Housing and Urban Dev., 236 F.3d at 762, plaintiffs suing HUD for a negligent investigation tried to avoid the discretionary function exception by arguing that the investigation “differ[ed] from others because it took the form of an ‘audit.‘” The plaintiffs in Sloan (unlike the plaintiffs in this case) identified specific auditing standards imposed by statute on the agency in question, id. at 763, but the court of appeals nevertheless rejected their argument, concluding that the auditing standards left “аmple room for the exercise of professional judgment.” Id. In this circuit, then, the existence of professional standards to which a government employee is bound does not necessarily strip that employee of
The plaintiffs’ claim in this case is even weaker than the one rejected in Sloan. First, this case involves the investigation of potential securities law violations, a quasi-prosecutorial endeavor that entails even more room for discretion and professional judgment than the performance of financial audits. Second, the plaintiffs do not point to any specific body of professional standards that SEC examiners or investigators are obliged to follow. Instead, the plaintiffs simply assert that employees violated “professional standards,” the proof of which apparently is found in the “sheer incompetence” of their actions. Opp. at 30. Without having identified any particular professional standards binding SEC investigators—much less standards that are more rigid than those discussed in Sloan—the plaintiffs have not alleged the violation of any mandatory duties. Nor have they revealed any decisions that are untethered from the policy considerations that inherently underlie investigatory decisionmaking.
Even if FTCA liability could be premised on a violation of professional standards, therefore, the plaintiffs’ claim in this case cannot succeed. And in truth, the plaintiffs’ allegations serve only to illustrate the degree to which decisions made by SEC investigators during the Madoff inquiries were characterized by the exercise of judgment and choice.7
4. Exceeding the Range of Permissible Conduct
Finally, the plaintiffs maintain that the discretionary function exception does not apply because the behavior of the SEC employees investigating Madoff was outside any “permissible range of conduct,” Opp. at 34, a theory of liability for which the plaintiffs purport to find support in Fazi v. United States, 935 F.2d 535 (2d Cir.1991). According to the plaintiffs, the acts and omissions of the SEC investigators were so egregious that they “cannot be protected under the first prong of the Berkovitz test, regardless of whether the SEC actually adoрted a formal policy saying as much, because they ‘[could not] appropriately be the product of judgment or choice.‘” Opp. at 34 (quoting Fazi v. United States, 935 F.2d at 538); see id. at 34-35 (comparing investigators’ failure to verify Madoff‘s trading activity to falling asleep on the job, neither of which could be within a staffer‘s discretion regardless of whether it violated any specific statute, regulation, or policy).
This theory is based entirely on a misreading of Fazi. The passage from that opinion relied upon by the plaintiffs simply describes the two-part test under Berkovitz and Gaubert for determining whether the discretionary function exception applies to particular acts. The court in Fazi explained that in addition to protecting “decisions at the policy or planning level,” the exception “bars claims based on day-to-day management decisions if those deci-
D. Discovery
Having failed to identify any statutes, regulations, or known SEC policies that agency staffers violated during the Madoff inquiries, the plaintiffs maintain that they are entitled to discovery in order to determine “whether the conduct of SEC staff was prohibited by any handbooks, guidelines, policies or procedures or directives governing SEC investigations.” Opp. at 33.
“This Circuit‘s standard for permitting jurisdictional discovery is quite liberal.” Diamond Chemical Co., Inc. v. Ato-fina Chemicals, Inc., 268 F.Supp.2d 1, 15 (D.D.C.2003). Nevertheless, “[w]here additional discovery would not be beneficial to [plaintiff‘s] establishment of jurisdiction,’ discovery need not be granted prior to dismissal on jurisdictional grounds.” Baptist Memorial Hosp. v. Johnson, 603 F.Supp.2d 40, 44 (D.D.C.2009) (quoting Cheyenne-Arapaho Tribes v. United States, 517 F.Supp.2d 365, 373 (D.D.C.2007)). “Where there is no showing of how jurisdictional discovery would help plaintiff discover anything new, it [is] inappropriate to subject [defendant] to the burden and expense of discovery.” Baptist Memorial Hosp. v. Johnson, 603 F.Supp.2d at 44 (quoting Medical Solutions v. C Change Surgical LLC, 468 F.Supp.2d 130, 135 (D.D.C.2006)).
The plaintiffs rely on Ignatiev v. United States, 238 F.3d 464 (D.C.Cir.2001), in support of their discovery request. See Opp. at 33. In Ignatiev, the plaintiffs brought an FTCA action based on conduct by the Secret Service, and the district court dismissed the claim under the discretionary function exception for failure to identify any mandatory duties that were allegedly violated by the agency. The D.C. Circuit reversed and permitted discovery of whether the Secret Service maintained internal guidelines that could serve as an actionable source of mandatory obligations. Id. at 467. The plaintiffs in this case request a similar discovery opportunity.
A comparison of the situation in Ignatiev with the facts here, however, reveals that discovery is not warranted. As noted, Ignatiev involved a claim against the Secret Service, which acknowledged that it maintained confidential internal policies. Ignatiev v. United States, 238 F.3d at 466. The plaintiffs sought to prove that among these policies were guidelines on the protection of foreign embassies, which the agency allegedly violated. The Court of Appeals explained that the plaintiffs “have reason to believe that some such guidelines exist, since the Secret Service‘s only mandate to protect Washington‘s missions is to ‘perform such duties as the Director ... may prescribe.‘” Id. at 467 (quoting
The plaintiffs’ request for jurisdictional discovery, therefore, is not supported by Ignatiev, and the plaintiffs “have not pleaded ‘enough facts to raise a reasonable expectation that discovery will reveal evidence of the sought-after SEC policies and guidelines.‘” Dichter-Mad Family Partners, LLP v. United States, 707 F.Supp.2d at 1053 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)); see id. at 1052-54 (rejecting similar discovery request).
IV. CONCLUSION
The financial losses suffered by the plaintiffs and other victims of Bernard Madoff‘s fraud are undeniably tragic, and a desire to hold the government accountable for the SEC‘s egregious and well-documented missteps is understandable. But were the plaintiffs to prevail, “the SEC would become the guarantor of the investment decisions of individuals who choose to participate in regulated markets,” Baer v. United States, 2011 WL 6131789, at *7, a result not in keeping with the FTCA and its statutorily imposed limits. The plaintiffs have not identified any “mandatory obligations” violated by SEC employees during the performance of their discretionary rеsponsibilities, nor have they alleged facts “demonstrating that the challenged actions are not grounded in public policy considerations.” Ignatiev v. United States, 238 F.3d at 466. Consequently, their complaint cannot survive the government‘s motion to dismiss. See id.
For the foregoing reasons, the United States’ motion to dismiss for lack of subject matter jurisdiction has been granted. An Order consistent with this Opinion was issued on March 26, 2012.
SO ORDERED.
PAUL L. FRIEDMAN
United States District Judge
Notes
While the D.C. Circuit has not held that the burden of proof ever shifts to the government, it clearly agrees that plaintiffs bear an initial jurisdictional burden of pleading facts that fall outside the discretionary function exception. See Shuler v. United States, 531 F.3d at 933-34 (“Under the FTCA, the district court has subject matter jurisdiction to consider the merits of Shuler‘s claim only if his complaint sets forth facts sufficient to demonstrate either that the government employee whose conduct caused him harm violated a specifically prescribed policy, or that the employee‘s harmful conduct was not within the sphere of discretion lawfully given him[.]“) (emphasis added); Ignatiev v. United States, 238 F.3d 464, 466 (D.C.Cir.2001) (stating that to survive a motion to dismiss, a complaint must allege conduct that is not shielded by the discretionary function exception). Where, as here, plaintiffs fail to satisfy that initial requirement, it is irrelevant whether any burden ever shifts to the government.