Carlos Zelaya v. United States , 781 F.3d 1315 ( 2015 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 13-14780
________________________
D.C. Docket No. 0:11-cv-62644-RNS
CARLOS ZELAYA,
individually, and
GEORGE GLANTZ,
individually and as trustee of the George Glantz Revocable Trust,
for themselves and on behalf of all those persons similarly situated,
Plaintiffs-Appellants,
versus
UNITED STATES OF AMERICA,
Defendant-Appellee.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(March 30, 2015)
Before TJOFLAT, JULIE CARNES, and GILMAN, ∗ Circuit Judges.
∗
Honorable Ronald Lee Gilman, United States Circuit Judge for the Sixth Circuit, sitting by
designation.
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JULIE CARNES, Circuit Judge:
The plaintiffs in this case, Carlos Zelaya and George Glantz, are victims of
one of the largest Ponzi schemes in American history: the much-publicized Ponzi
scheme orchestrated by R. Allen Stanford. All Ponzi operations eventually
unravel, and when the scheme that had victimized Plaintiffs was publicly revealed
to have been a fraud, Plaintiffs were taken by surprise. Yet, according to Plaintiffs,
the federal agency entrusted with the duty of trying to prevent, or at least reveal,
Ponzi schemes was not all that surprised. To the contrary, this agency, the United
States Securities and Exchange Commission (“SEC”), had been alerted over a
decade before that Stanford was likely running a Ponzi operation. According to
Plaintiffs, notwithstanding its knowledge of Stanford’s likely nefarious dealings,
the SEC dithered for twelve years, content not to call out Stanford and protect
future investors from his fraud. And even though the SEC eventually roused itself
to take action in 2009, by then, of course, the money was long gone, and many
people lost most of their investments.
Pursuant to the Federal Tort Claims Act, Plaintiffs sued the United States in
federal court, alleging that the SEC had acted negligently. The federal government
moved to dismiss, arguing that it enjoyed sovereign immunity from the lawsuit.
The district court agreed, and dismissed Plaintiffs’ case. Plaintiffs now appeal that
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dismissal to this Court. In reviewing the district court’s dismissal, we reach no
conclusions as to the SEC’s conduct, or whether the latter’s actions deserve
Plaintiffs’ condemnation. We do, however, conclude that the United States is
shielded from liability for the SEC’s alleged negligence in this case. We therefore
affirm the district court’s dismissal of the Plaintiffs’ complaint.
I. Factual Background
As noted, this action arises from one of the largest Ponzi schemes in
history. 1 In the 1990s and 2000s, financier R. Allen Stanford (“Stanford” or
“Allen Stanford”) engineered investments in his Antiguan-based Stanford
International Bank Ltd. (“Stanford Bank”) through a network of entities: Stanford
Bank itself; Stanford Group, with more than twenty-five offices across the United
States; Louisiana-based Stanford Trust Company; and Miami, Houston, and San
Antonio-based Stanford Fiduciary Investor Services. Through this network,
Stanford Bank issued high-interest certificates of deposit (“CDs”) to tens of
thousands of investors across the globe, ultimately accumulating billions of dollars.
Unbeknownst to these investors, however, Stanford Bank never invested this
1
The facts considered on this appeal are taken from the allegations set out in the
Plaintiffs’ amended complaint. In reviewing the grant of a motion to dismiss, we “accept[] the
allegations in the complaint as true and costru[e] them in the light most favorable to the
nonmoving party.” Kizzire v. Baptist Health Sys., Inc., 441 F.3d 1306, 1308 (11th Cir. 2006).
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money in securities, as it had promised to do. Instead, the Bank funneled new
infusions of cash to earlier investors and to Allen Stanford himself.
As early as 1997, the SEC had been alerted that Stanford was conducting a
Ponzi scheme through the above companies. One of these companies, Stanford
Group, had been registered with the SEC since 1995 as a broker-dealer and
investment advisor, which meant that it was subject to SEC reporting requirements.
Yet, despite four investigations between 1997 and 2004, the SEC took no action to
stop the fraud until 2009.
In its first investigation, begun in 1997, the SEC discovered that Stanford
had contributed $19 million in cash to Stanford Group, which caused the SEC
“concern[] that the cash contribution may have come from funds invested by
customers at [Stanford Bank].” The Branch Chief of the Fort Worth, Texas SEC
office conducting the investigation considered the purported returns on Stanford
Bank’s CDs to be “absolutely ludicrous” and believed that they were not
“legitimate CDs.” The Assistant District Administrator heading the investigation
warned the Branch Chief to “keep your eye on these people [referencing Stanford]
because this looks like a Ponzi scheme to me and someday it’s going to blow up.”
The following year, the successor of that Assistant District Administrator stated,
“[A]s far as I was concerned at that period of time[,] . . . we all thought it was a
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Ponzi scheme to start with. Always did.” The investigating group concluded,
“[P]ossible misrepresentations. Possible Ponzi scheme.” Still, the SEC took no
action against Stanford.
In the SEC’s second investigation, begun in 1998, the investigators decided
that “Stanford was operating some kind of fraud” through Stanford Group. They
noted that Stanford Group was “extremely dependent upon [Stanford Bank’s very
generous commission] compensation to conduct its day-to-day operations.”
Despite this, the SEC did nothing.
In 2002, the SEC investigated Stanford a third time, determining that
Stanford Group should be assigned the SEC’s highest risk rating because of the
SEC’s “suspicions the international bank [Stanford Bank] was a Ponzi scheme”
and because Stanford Bank’s “consistent above-market reported returns” were
likely illegitimate. Notwithstanding this concern, the SEC, once again, did
nothing.
In 2004, the SEC conducted a fourth investigation of Stanford, again
reaching the conclusion that Stanford Bank “may in fact be a very large Ponzi
scheme.” Sitting on this information for five more years, the SEC finally took
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enforcement action against Stanford and his various business entities in 2009. 2 By
then though, most of the investors’ money was gone, and the SEC has been able to
recover only $100 million of the $7 billion invested in Stanford Bank.
Plaintiffs Zelaya and Glantz were two of the many investors who thought
they were purchasing legitimate securities. Zelaya invested $1 million and Glantz
invested approximately $650,000. Both plaintiffs have lost almost their entire
investments.
II. Procedural Background
Pursuant to the Federal Tort Claims Act (“FTCA”), and alleging one count
of negligence based on the SEC’s failure to act upon its knowledge of Stanford
Group’s participation in the Stanford Bank Ponzi scheme, Plaintiffs filed suit in
2011 against the United States (“the Government”) in the United States District
Court for the Southern District of Florida. In their initial complaint, Plaintiffs
identified two separate statutory duties that the SEC had allegedly breached
through its inaction. First, Plaintiffs asserted a “notification claim” pursuant to the
2
In February 2009, the SEC filed civil proceedings against Stanford Group. See
Complaint at 1, SEC v. Stanford Int’l Bank, Ltd., No. 3:09-cv-298-N (N.D. Tex. Feb. 17, 2009).
Stanford was ordered to disgorge $6.7 billion to the SEC and he received a $5.9 billion penalty.
See Order at 17, SEC v. Stanford Int’l Bank, Ltd., No. 3:09-cv-298-N (N.D. Tex. Apr. 25, 2013).
On June 18, 2009, Stanford was indicted on mail fraud, wire fraud, conspiracy to commit
securities fraud and money laundering, and conspiracy to obstruct an SEC investigation. He was
convicted in 2012 and sentenced to 110 years in prison. See Judgment at 3, United States v.
Stanford, No. 4:09-cr-00342-01 (S.D. Tex. June 14, 2012), appeal docketed, No. 12-20411 (5th
Cir. June 19, 2012).
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Securities Investor Protection Act of 1970, 15 U.S.C. §§ 78aaa-lll. Specifically,
Plaintiffs relied on § 78eee(a)(1), which provides that “[i]f the [SEC] is aware of
facts which lead it to believe that any broker or dealer subject to its regulation is in
or is approaching financial difficulty, it shall immediately notify SIPC.” SIPC is
an acronym for the Securities Investor Protection Corporation, which is a non-
profit corporation with which Stanford Group, as a registered broker-dealer, was
required to maintain membership. Plaintiffs note that although Stanford Group
was subject to regulation by the SEC and the SEC had allegedly concluded that
Stanford Group was involved in a Ponzi scheme, the SEC failed to notify SIPC, as
required by § 78eee(a)(1).
Second, Plaintiffs also raised a “registration claim” pursuant to 15 U.S.C.
§ 80b-3(c). Plaintiffs contend that § 80b-3(c) required the SEC to revoke the
registration of Stanford Group, but the SEC failed to do so.
The Government responded with a motion to dismiss. As discussed below,
while the FTCA, as a general matter, waives what would otherwise be the federal
government’s sovereign immunity from legal actions for torts committed by its
employees, there are exceptions to that general waiver. In its motion to dismiss,
the Government argued that one of those exceptions, the “discretionary function
exception,” barred Plaintiffs’ claims based on the alleged breach of both of the
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above statutory duties. Given the application of this exception, the Government
contended that the district court lacked subject matter jurisdiction.
The district court granted the Government’s motion to dismiss with regard to
the registration claim, holding that the discretionary function exception applied and
therefore preserved the Government’s sovereign immunity on that claim. The
district court, however, denied the Government’s motion to dismiss with regard to
Plaintiffs’ notification claim.
Plaintiffs then filed an amended complaint, re-alleging the surviving
notification claim as the sole basis for their negligence action. The Government
again moved to dismiss, this time raising the “misrepresentation exception” as a
bar to its capacity to be sued under the FTCA. Although it had earlier rejected the
application of the discretionary function exception to the notification claim, the
district court agreed that the misrepresentation exception did apply and that it
precluded this claim. As a result, the court concluded that it likewise lacked
subject matter jurisdiction on the notification claim and therefore granted the
Government’s motion to dismiss. With no remaining claims, the court entered a
final judgment for the Government. Plaintiffs filed the present appeal, contending
that the district court should not have dismissed either the registration claim or the
notification claim.
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III. Discussion
A. Sovereign Immunity, Subject Matter Jurisdiction, and the
Federal Tort Claims Act—Generally
The district court dismissed Plaintiffs’ claims based on an absence of subject
matter jurisdiction. We review a district court’s dismissal of an action for lack of
subject matter jurisdiction de novo. Motta ex rel. A.M. v. United States, 717 F.3d
840, 843 (11th Cir. 2013).
It is well settled that the United States, as a sovereign entity, is immune from
suit unless it consents to be sued. Christian Coal. of Fla., Inc. v. United States,
662 F.3d 1182, 1188 (11th Cir. 2011) (citing United States v. Dalm, 494 U.S. 596,
608 (1990)); accord Alden v. Maine, 527 U.S. 706, 758 (1999) (“To the extent
Maine has chosen to consent to certain classes of suits while maintaining its
immunity from others, it has done no more than exercise a privilege of sovereignty
concomitant to its constitutional immunity from suit.”). Through the enactment of
the FTCA, the federal government has, as a general matter, waived its immunity
from tort suits based on state law tort claims. Millbrook v. United States, ___ U.S.
___, 133 S. Ct. 1441, 1443 (2013) (citing Levin v. United States, ___ U.S. ___, 133
S. Ct. 1224, 1228 (2013)). But in offering its consent to be sued, the United States
has the power to condition a waiver of its immunity as broadly or narrowly as it
wishes, and according to whatever terms it chooses to impose. United States v.
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Sherwood, 312 U.S. 584, 586 (1941) (“[T]he terms of [the government’s] consent
to be sued in any court define that court’s jurisdiction to entertain the suit.”). That
being so, a court must strictly observe the “limitations and conditions upon which
the Government consents to be sued” and cannot imply exceptions not present
within the terms of the waiver. Soriano v. United States, 352 U.S. 270, 276
(1957). If there is no specific waiver of sovereign immunity as to a particular
claim filed against the Government, the court lacks subject matter jurisdiction over
the suit. See F.D.I.C. v. Meyer, 510 U.S. 471, 475–76 (1994).
But that which the Sovereign gives, it may also take away, and the
Government has done so through statutory exceptions in 28 U.S.C. § 2680,
including the § 2680(a) discretionary function exception and the § 2680(h)
misrepresentation exception, which serve to block the waiver of sovereign
immunity that would otherwise occur under the FTCA. See 28 U.S.C. § 2680.
These exceptions “must be strictly construed in favor of the United States,” and
when an exception applies to neutralize what would otherwise be a waiver of
immunity, a court will lack subject matter jurisdiction over the action. JBP
Acquisitions, LP v. United States ex rel. FDIC, 224 F.3d 1260, 1263–64 (11th Cir.
2000) (internal quotation marks omitted).
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B. Interplay Between 28 U.S.C. §§ 1346(b)(1), 2674(b)(1), and 2680
Any plaintiff seeking to sue the United States under the FTCA must satisfy
two initial statutory burdens to establish jurisdiction. Clark v. United States, 326
F.3d 911, 912 (7th Cir. 2003). First, as with all suitors in federal courts, the
plaintiff must identify an explicit statutory grant of subject matter jurisdiction,
which in the case of the FTCA is 28 U.S.C. § 1346(b)(1). Id. This statute
provides:
Subject to the provisions of chapter 171 of this title [i.e., 28 U.S.C.
§§ 2671–2680], the district courts . . . shall have exclusive
jurisdiction of civil actions on claims against the United States, for
money damages, accruing on and after January 1, 1945, 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.
28 U.S.C. § 1346(b)(1) (emphasis added). Translated, any time the federal
government is sued based on the act of an employee performed within the scope of
his employment duties, federal district courts will have exclusive jurisdiction of
such claims. In addition, § 1346(b)(1) sets, as a predicate, a requirement that the
circumstances be such that a private person would be liable under the law of the
state where the federal employee’s act or omission occurred, had a private person
so acted.
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Because the United States is a sovereign entity, the second jurisdictional
requirement is a statute that waives its sovereign immunity. Clark, 326 F.3d at
912; see also Meyer, 510 U.S. at 475 (“Sovereign immunity is jurisdictional in
nature.”). This waiver of sovereign immunity is provided in chapter 171 of Title
28, which chapter includes §§ 2671–2680. The waiver is most directly referenced
in § 2674.
As the texts of the two statutes indicate, jurisdiction depends on both statutes
being satisfied. Indeed, § 1346(b)(1) explicitly makes its grant of jurisdiction
subject to the conditions of chapter 171, with its introductory phrase declaring that
the sub-section is “[s]ubject to the provisions of chapter 171 of this title.” Two
provisions found in chapter 171 are pertinent in this case. Section 2674
affirmatively establishes the Government’s liability for tort claims, but reiterates
§ 1346(b)(1)’s requirement conditioning liability by the Government on a showing
that a private individual would be liable under like circumstances. 3 Finally,
§ 2680, the final section of chapter 171, lists exceptions to the United States’
waiver of sovereign immunity, under which “[t]he provisions of this chapter and
section 1346(b)(1) of this title shall not apply.” See 28 U.S.C. § 2680.
3
“The United States shall be liable, respecting the provisions of this title relating to tort
claims, in the same manner and to the same extent as a private individual under like
circumstances . . . .” 28 U.S.C. § 2674.
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Thus, between § 1346(b)(1) and chapter 171, there are numerous
prerequisites to, and limitations on, the grant of jurisdiction over tort suits against
the United States. In the present case, two obstacles potentially block Plaintiffs’
efforts to use the FTCA to sue the Government based on the SEC’s alleged
negligence in this case. First, as noted, there are exceptions, found within the
FTCA itself, that preclude use of that statute by a plaintiff to sue the Government
for tort claims. And it is the applicability of those exceptions on which the district
court and parties focused below, with the court ultimately determining that two
statutory exceptions blocked Plaintiffs’ efforts to use the FTCA to pierce the
Government’s sovereign immunity.
But there is another obstacle that was largely ignored by the district court
and the parties. Specifically, even when no applicable exception exists, the FTCA
does not provide an open field for a litigant to sue the federal government for the
alleged torts of its agents. Instead, the particular statute granting subject matter
jurisdiction over such claims—28 U.S.C. § 1346(b)(1)—constrains a litigant as to
the type of claims that can properly be brought pursuant to the statute. That is,
both §§ 1346(b)(1) and 2674 preclude liability of the federal government absent a
showing by the plaintiff that a private individual who had acted as did the federal
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employee, in like circumstances, would be liable for the particular tort under
governing state law where the tort occurred.
We address first the impact of the above requirement on this litigation, after
which we discuss the applicability of statutory exceptions in this case.
C. The Federal Tort Claims Act’s Requirement of a State Law
Analogue
1. The Need for a State Tort Analogue
The FTCA was enacted to provide redress to injured individuals for ordinary
torts recognized by state law but committed by federal employees. Ochran v.
United States, 273 F.3d 1315, 1317 (11th Cir. 2001) (“Ochran II”); Sellfors v.
United States, 697 F.2d 1362, 1365 (11th Cir. 1983) (Congress “was concerned
primarily with providing redress for the garden variety common law torts
recognized by state law.”). Indeed, the reference in § 1346(b)(1) to “the law of the
place where the act or omission occurred” means the law of the state where the
alleged tort occurred. Stone v. United States, 373 F.3d 1129, 1130 (11th Cir.
2004).
As a corollary of that principle, it is well established that a federal statute
cannot constitute the “law of the place” because “[t]he FTCA was not intended to
redress breaches of federal statutory duties.” Sellfors, 697 F.2d at 1365. Stated
another way, the fact that a federal employee has failed to perform duties imposed
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by federal law is insufficient by itself to render the federal government liable under
the FTCA. Pate v. Oakwood Mobile Homes, Inc., 374 F.3d 1081, 1084 (11th Cir.
2004). Instead, a state tort cause of action is a sine qua non of FTCA jurisdiction,
and we have dismissed FTCA suits that have pleaded breaches of federal duties
without identifying a valid state tort cause of action. See, e.g., Ochran II, 273 F.3d
at 1317.
Yet notwithstanding their inability to support an FTCA suit, federal statutes
and regulations can still be important. First, they “may provide evidence that the
government has assumed duties analogous to those recognized by local tort law.”
Art Metal-U.S.A., Inc. v. United States, 753 F.2d 1151, 1158 (D.C. Cir. 1985).
Similarly, they “may provide the standard of care against which the government’s
conduct should be assessed.” Id. at 1159. Accordingly, the negligent performance
of duties set out in federal statutes and regulations may shore up a claim under the
FTCA, “but only if there are analogous duties under local tort law.” Id. at 1157
(emphasis in original). In short, while a federal employee’s breach of a federally-
imposed duty may bolster a FTCA claim, it cannot, on its own, create the duty that
gives rise to that claim. That task falls to the applicable state jurisdiction.
When the complaint involves one of the “garden variety common law torts,”
this requirement of a state tort cause of action can be easily met. Sellfors, 697 F.2d
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at 1365. For example, a plaintiff suing based on an automobile accident caused by
a federal employee would readily find a comparable state-law tort to buttress his
FTCA claim. Difficulties arise, however, when the activities at issue are “uniquely
governmental functions” with unique duties that suggest no obvious analogue
among private actors. Indian Towing Co. v. United States, 350 U.S. 61, 64 (1955).
Without question, it can be difficult to imagine how a private person could be
liable for breaches of such quintessentially governmental functions as the
regulation of air travel, prisoners, drugs, and livestock because no private person
has such duties under state law. 4 See, e.g., Smoke Shop, LLC v. United States, 761
F.3d 779, 780 (7th Cir. 2014) (drug enforcement regulations); Alfrey v. United
States, 276 F.3d 557, 559 (9th Cir. 2002) (regulation of prison inmates); Dorking
Genetics v. United States, 76 F.3d 1261, 1262 (2d Cir. 1996) (cattle inspections);
Howell v. United States, 932 F.2d 915, 916 (11th Cir. 1991) (airline safety
regulations).
Notwithstanding these conceptual difficulties, the Supreme Court long ago
made clear that there is no exception from FTCA liability solely because the
particular tort arose from the performance of uniquely governmental functions.
4
Further, the analogy that must be made is one between the federal government and a
private person, and thus a state law that permits tort claims against the state or local government
does not suffice. United States v. Olson, 546 U.S. 43, 44 (2005); Maradiaga v. United States,
679 F.3d 1286, 1292 (11th Cir. 2012).
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Indian Towing, 350 U.S. at 64. So, the question arises, how should the FTCA be
applied when uniquely governmental functions are at issue? We have recognized
that “[n]ormally, the most analogous approach in determining whether the
government is liable in the regulator-enforcer context under state law is the [G]ood
[S]amaritan doctrine.” Pate, 374 F.3d at 1086; see also Indian Towing, 350 U.S. at
64–65 (“[T]he statutory language [of 28 U.S.C. § 2674] is ‘under like
circumstances,’ and it is hornbook tort law that one who undertakes to warn the
public of danger and thereby induces reliance must perform his ‘[G]ood Samaritan’
task in a careful manner.”). Thus, in cases where the plaintiff points to the
violation of a federal statutory or regulatory duty, we generally look to the
applicable state’s Good Samaritan doctrine to decide if the plaintiff has alleged a
state tort claim that satisfies the § 1346(b)(1) requirement and thereby opens the
door for a claim under the FTCA. See, e.g., Sellfors, 697 F.2d at 1367; Howell,
932 F.2d at 918; Pate, 374 F.3d at 1086.
2. The Plaintiffs’ Negligence Claim
Here, Plaintiffs’ first amended complaint alleged only the tort of negligence,
without specifying which state’s law of negligence applied and in apparent
ignorance of the fact that identifying an analogous state tort cause of action is
required for an FTCA cause of action. Instead, Plaintiffs alleged generally that the
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SEC breached “the duty of care owed to investors” as a result of violations of its
federal statutory duties to revoke Stanford Group’s registration and to notify SIPC
of Stanford Group’s financial hazard. But, as explained, mere breaches of federal
statutory duties are, as a threshold matter, insufficient to support a cause of action.
Sellfors, 697 F.2d at 1365. Unless Plaintiffs can identify corresponding state law
duties, they have, at the least, failed to state a claim, and arguably their lapse
deprives the court of even subject matter jurisdiction over the action. Ochran II,
273 F.3d at 1317; Bennett v. United States, 102 F.3d 486, 488-89 & n.1 (11th Cir.
1996); Lawrence v. Dunbar, 919 F.2d 1525, 1528 (11th Cir. 1990) (per curiam)
(“State law . . . governs the question of whether the United States has waived its
sovereign immunity against liability . . . .”); see also Glade ex rel. Lundskow v.
United States, 692 F.3d 718, 723 (7th Cir. 2012) (determining that the specific
state law cause of action is “a threshold issue” upon which subject matter
jurisdiction depends); Gould Elec. Inc. v. United States, 220 F.3d 169, 179 (3d Cir.
2000).
Although the Government did not raise this issue in its first motion to
dismiss, it did so in its second motion. The Government noted that, based on
Plaintiffs’ factual allegations, any state tort on which it relied would have to exist
either under the laws of Texas (where the alleged investigative failures occurred)
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or the District of Columbia (where the SEC is headquartered). The Government
also noted that, absent some special relationship between the parties, “neither
jurisdiction recognizes any duty on the part of a private individual to act for the
protection of another or to prevent harm by a third person.”
Notwithstanding this argument by the Government, the district court did not
address this matter in its order dismissing Plaintiffs’ notification claim. Nor do the
parties address the state law cause of action requirement in this appeal. But to the
extent that the failure to provide a pertinent state tort analogue robs a plaintiff of
subject matter jurisdiction under the FTCA, it appears that Plaintiffs would face
some uphill sledding in trying to find such an analogue here.
First, adopting the approach of the Restatement (Second) of Torts, neither
Texas nor the District of Columbia requires a person to act to prevent harm to
others, absent some special relationship. Torrington Co. v. Stutzman, 46 S.W.3d
829, 837 (Tex. 2000) (citing Restatement (Second) of Torts § 314 (1965)); Feirson
v. Dist. of Columbia, 506 F.3d 1063, 1068-69 (D.C. Cir. 2007) (same). 5 Again
following the Restatement, neither jurisdiction generally requires a person to
prevent a third party from causing harm. Greater Houston Transp. Co. v. Phillips,
5
Under the Restatement, the recognized “special relations” arise between (1) common
carriers to passengers, (2) innkeepers to guests, (3) possessors of land held open to members of
the public, and (4) custodians to their wards. Restatement (Second) of Torts § 314A (1965). The
relationship of the SEC to investors does not appear to fit into any of these classes.
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801 S.W.2d 523, 525 (Tex. 1990) (citing Restatement (Second) of Torts § 315
(1965)); Skeen v. Federative Republic of Brazil, 566 F. Supp. 1414, 1419 (D.D.C.
1983) (same). 6 Also in line with the Restatement, neither jurisdiction permits
recovery through a negligence action for purely economic losses absent some
special relationship between the parties. Jones v. Hartford Life and Acc. Ins. Co.,
443 F. Supp. 2d 3, 7 n.4 (D.D.C. 2006) (requiring an “intimate nexus” between the
parties); Express One Int’l, Inc. v. Steinbeck, 53 S.W.3d 895, 898 (Tex. Ct. App.
2001); see also Restatement (Second) of Torts § 323 (1965). Moreover, with
regard to liability arising from voluntary (“Good Samaritan”) undertakings, Texas
requires that the plaintiff establish both reliance and an increased risk of harm.
Torrington Co., 46 S.W.3d at 838 n.7; see also Colonial Sav. Ass’n v. Taylor, 544
S.W.2d 116, 119–20 (Tex. 1976) (noting that Texas follows the Restatement
(Second) of Torts § 323 (1965) on voluntary-undertaking liability). Plaintiffs here
have expressly denied reliance in their notification claim.
It therefore seems questionable whether Plaintiffs could show, for either
Texas or the District of Columbia, the existence of a tort cause of action against a
6
Under the Restatement, there is a duty to prevent another from causing harm in these
relationships: (1) parents and children, (2) masters and servants, (3) possessors of land or
chattels and their licensees, (4) those in charge of persons with dangerous propensities and those
dangerous persons, and (5) custodians and wards. Restatement (Second) of Torts §§ 316–320
(1965). Again, none of these appear analogous to the relationship between the SEC and Stanford
Group.
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private person under the circumstances alleged by Plaintiffs here. We are reluctant
to decide the case on this ground, however because neither party has briefed the
matter. Accordingly, were the absence of a state tort analogue the only potential
obstacle to the existence of subject matter jurisdiction here, we would be inclined
to remand the case to the district court for the latter to rule, in the first instance, on
this question. But that is not necessary because the district court did find the
absence of subject matter jurisdiction based on a second ground that the parties
have litigated. And because we agree with the district court that the discretionary
function exception and the misrepresentation exception do apply here to negate the
waiver of sovereign immunity that might otherwise arise from the FTCA, we
resolve the case on that ground. We turn to these § 2680 exceptions now.
D. Exceptions to Waiver of Sovereign Immunity
As noted, when either the discretionary function exception or the
misrepresentation exception applies, there is no waiver of sovereign immunity
under the FTCA. See 28 U.S.C. § 2680(a), (h). These exceptions “must be strictly
construed in favor of the United States” and, when an exception applies, a court
will lack subject matter jurisdiction over the action. JBP Acquisitions, 224 F.3d at
1263–64. We turn now to examine whether the above exceptions apply here.
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1. Plaintiffs’ Registration Claim
In support of their registration claim, Plaintiffs argue that 15 U.S.C. § 80b-
3(c) imposed on the SEC a duty to revoke Stanford Group’s registration as a
broker-dealer once it had determined that Stanford Group was involved in a Ponzi
scheme. The district court rejected this claim on two grounds. First, it concluded
that Plaintiffs had misread § 80b-3(c). The court held that, although this statute
may impose certain duties on the SEC in its review and approval of an initial
registration application by a broker-dealer, it did not impose those same duties with
regard to a broker-dealer’s subsequent registration amendments. Because only
registration amendments, not the initial registration, were at issue here, the district
court concluded that Plaintiffs had failed to articulate an applicable duty of the
SEC. Second, the district court held that, even assuming a duty by the SEC to
similarly review registration amendments, any actions taken, or not taken, after
that review would be discretionary and therefore barred by the discretionary
function exception.
a. Duties Pertaining to Registration Amendments
Analysis of the merits of the district court’s first ground for dismissal
focuses on the question whether 15 U.S.C. § 80b-3(c) imposes not only a duty to
disallow initial registration by a broker-dealer who makes a material misstatement
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or is otherwise disqualified, but also a duty to take adverse action against an
advisor at a later time when the latter amends his registration.7 Because Plaintiffs
allege nothing amiss about the Stanford Group’s initial 1995 registration, the
registration claim was properly dismissed if the statutory duty applies only to an
initial registration. If, on the other hand, the duty also applies to registration
amendments, then Plaintiffs have potentially made out a registration claim, and we
would then have to determine whether the discretionary function exception would
apply to that claim.
So, as to the question whether 15 U.S.C. § 80b-3(c) imposes on the SEC the
duty that Plaintiffs attribute to it, the answer is no. The title of § 80b-3(c) is
“Procedure for registration; filing of application; effective date of registration;
amendment of registration.” It has two subsections. The first, § 80b-3(c)(1), sets
out the documentation an applicant must submit to the SEC when applying for
broker-dealer registration. The second, § 80b-3(c)(2), mandates that, within 45
days of filing, the SEC must either grant a registration application or institute
proceedings on that application. The provision further sets out the criteria that the
SEC should use in determining whether to grant or deny registration:
7
Once registered, a broker-dealer is required to submit an annual, amended update to the
Form ADV submitted at the initial registration. 17 C.F.R. § 275.204-1 (2011).
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The Commission shall grant such registration if the Commission finds
that the requirements of this section are satisfied and that the applicant
is not prohibited from registering as an investment advisor under
section 80b-3a of this title. The Commission shall deny such
registration if it does not make such a finding or if it finds that if the
applicant were so registered, its registration would be subject to
suspension or revocation under subsection (e) of this section.
15 U.S.C. § 80b-3(c)(2). Spelled out, the statute tells the SEC that it should grant
the applicant’s registration if all requirements under the section are satisfied and if
the applicant is not otherwise prohibited on grounds set out in § 80b-3a.
Conversely, the SEC should deny registration if it does not make the findings
necessary to grant the application or if the registration would be subject to
suspension or revocation under § 80b-3(e), had it already been granted.
The problem with Plaintiffs’ argument that § 80b-3(c)(2) imposes upon the
SEC certain duties at the time of the amendment of an existing registration is the
absence of any mention of that fact in its text. It is true that the phrase
“amendment of registration” is in the title of § 80b-3(c), but that isolated reference
is the only time the phrase is used. The language of the section consistently refers
to “granting” or “denying” registration, which are words that imply an initial
application, rather than an amendment to an existing application. Further, the text
contains no discussion of procedures or duties assigned to the SEC were it required
to consider suspension or revocation at the time of the filing of an amended
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registration. Indeed, the only time that § 80b-3(c) mentions suspension or
revocation of an existing registration is when it refers to a different statute, § 80b-
3(e), as the statute that sets the standard for such action. 8
With the absence of any reference to revocation or suspension of an entity’s
registration at the time of an amendment of that registration, Plaintiffs are left with
only a policy argument: that this Court should nonetheless expand the SEC’s
responsibilities under § 80b-3(c) to impose, with regard to a registration
amendment, the same duties that the SEC is directed to perform at the time of
initial registration. Failure to do so, Plaintiffs argue, would mean that “investment
advisors that the SEC knew were in violation of Federal securities laws [could]
remain registered, virtually indefinitely.”
Leaving aside the fact that a court has no power to rewrite a statute in
response to a persuasive policy argument, Plaintiffs’ concerns are nonetheless
overstated because, as § 80b-3(c)(2) clearly contemplates, the SEC maintains the
authority to suspend or revoke an existing registration under § 80b-3(e) if it is “in
8
Section 80b-3(e) bears the title “Censure, denial, or suspension of registration; notice
and hearing.” It requires the SEC to take action up to and including the revocation of registration
if “it finds, on the record after notice and opportunity for hearing, that such censure, placing of
limitations, suspension, or revocation is in the public interest.” 15 U.S.C. § 80b-3(e).
Notably, Plaintiffs have not proceeded under this § 80b-3(e), which is the subsection that
addresses revocation of an entity’s registration.
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the public interest.”9 In addition, the SEC has discretionary authority to pursue
violations of the securities laws under other statutory provisions and regulations.10
Thus, the SEC’s power to suspend reckless or dishonest broker-dealers does not
depend on the forced reading of § 80b-3(c) advocated by Plaintiffs.
But even if we could assume that the duties described in § 80b-3(c) were
deemed to apply to amendments to registration, we would still have to determine
whether the discretionary function exception would apply to shield the SEC from
liability. Unfortunately for Plaintiffs, the description of the SEC’s duties in § 80b-
3(c) falls short of the specificity that would be required to escape the discretionary
function exception. To understand why this is so, an explanation of that exception
is necessary.
b. Impact of the Discretionary Function Exception on
Plaintiffs’ Registration Claim
As noted, while the FTCA, as a general matter, waives the federal
government’s immunity from suit as to certain tort claims, Congress has created
9
Plaintiffs do not contend that § 80b-3(e) has been violated. Nor do their pleadings offer
any basis for concluding that the SEC failed in any duty set by § 80b-3(e), because the latter
predicates suspension or revocation on a finding, made after notice and opportunity for hearing,
that such adverse action would be in the public interest. Plaintiffs’ allegations here concern
internal, non-public determinations of the SEC, not findings made after a hearing.
10
See, e.g., 15 U.S.C. § 78u(a)(1) (“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 [securities laws].”); 17 C.F.R. § 202.5(a) (“The Commission may, in its
discretion, make such formal investigations . . . as it deems necessary to determine whether any
person has violated, is violating, or is about to violate . . . the federal securities laws . . . .”).
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exceptions to that general waiver of immunity. One of those exceptions, known as
the discretionary function exception, provides that the provisions of the FTCA
shall not apply to:
(a) Any Claim based upon an act or omission of an employee of the
Government, exercising due care, in the execution of a statute or
regulation, whether or not such statute or regulation be valid, or based
upon the exercise or performance or the failure to exercise or
perform a discretionary function or duty on the part of a federal
agency or an employee of the Government, whether or not the
discretion involved be abused.
28 U.S.C. § 2680(a) (emphasis added).
In short, the discretionary function exception serves to preserve sovereign
immunity for any claim that is based on a federal agency or employee’s
performance or nonperformance of a discretionary task, even if, in so acting, the
agency employee may have abused his discretion. See 28 U.S.C. § 2680(a);
Nguyen v. United States, 556 F.3d 1244, 1251 (11th Cir. 2009). Thus, this
exception “marks the boundary between Congress’ willingness to impose tort
liability upon the United States and its desire to protect certain governmental
activities from exposure to suit by private individuals.” United States v. S.A.
Empresa de Viacao Aerea Rio Grandense (Varig Airlines), 467 U.S. 797, 808
(1984); accord Marbury v. Madison, 5 U.S. (1 Cranch) 137, 170 (1803) (“The
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province of the court is . . . not to enquire how the executive, or executive officers,
perform duties in which they have a discretion.”).
In guiding the courts’ application of the discretionary function exception, the
Supreme Court has formulated a two-part test. First, the conduct that forms the
basis of the suit must involve an element of judgment or choice by the employee.
Berkovitz v. United States, 486 U.S. 531, 536 (1988); Autery v. United States, 992
F.2d 1523, 1526–28 (11th Cir. 1993). In determining whether judgment or choice
is present in the particular conduct at issue, the inquiry focuses on “whether the
controlling statute or regulation mandates that a government agent perform his or
her function in a specific manner.” Hughes v. United States, 110 F.3d 765, 768
(11th Cir. 1997) (internal quotation marks omitted). If a federal statute, regulation,
or policy specifically prescribes a course of action for an employee to follow, the
Government will have failed to show that the action at issue allowed for the
employee’s exercise of judgment or choice because, in that case, “the employee
ha[d] no rightful option but to adhere to the directive.” United States v. Gaubert,
499 U.S. 315, 322 (1991) (internal quotation marks omitted). Conversely, unless a
“federal statute, regulation, or policy specifically prescribes a course of action
embodying a fixed or readily ascertainable standard,” it will be presumed that the
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particular act involved an element of judgment or choice. Autery, 992 F.2d at 1529
(internal quotation marks, citation, and emphasis omitted).
If the Government has met this first element of the test for applying the
exception, then the second part of the test requires the court to “determine whether
that judgment is of the kind that the discretionary function exception was designed
to shield.” Berkovitz, 486 U.S. at 536. A particular decision will be of the kind
protected by the exception if it is the type of decision that one would expect to be
inherently grounded in considerations of policy. Autery, 992 F.2d at 1530–31.
Indeed, when a government agent is permitted to exercise discretion in making a
particular decision—whether that permission is express or implied—“it must be
presumed that the agent’s acts are grounded in policy when exercising that
discretion.” Gaubert, 499 U.S. at 324; accord OSI, Inc. v. United States, 285 F.3d
947, 951 (11th Cir. 2002). Finally, in examining whether an employee’s discretion
is of the type grounded in public policy, one uses an objective test, and the
employee’s subjective intent is irrelevant. Gaubert, 499 U.S. at 325; accord Mid-
S. Holding Co., Inc. v. United States, 225 F.3d 1201, 1207 (11th Cir. 2000);
Reynolds v. United States, 549 F.3d 1108, 1112 (7th Cir. 2008) (“Those labels [of
‘malicious and bad faith conduct’] do nothing for [plaintiff’s] cause, though . . .
[because] subjective intent is irrelevant to our analysis.”).
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We now apply the above standard to the case before us. We agree with the
district court that even if one could somehow intuit from § 80b-3(c) the existence
of some undescribed duties imposed on the SEC with regard to amended
registration submissions, the discretionary function exception would immunize the
Government from liability based on a faulty performance of those duties. First,
because the decision whether to deny an original registration application involves
an element of judgment or choice, likewise so would a decision regarding the
appropriate response to an amended registration. Second, Plaintiffs have identified
no federal statute, regulation, or policy that sets a “fixed or readily ascertainable
standard” by which to gauge the adequacy of the employee’s rendering of this
decision. To the contrary, the language of § 80b-3(c) provides no standard at all by
which the SEC should make findings that underpin a decision to deny an
application at the time an amended registration is filed. The language provides that
the Commission “shall grant such registration if the Commission finds that the
requirements of this section are satisfied and that the applicant is not prohibited
from registering as an investment advisor under section 80b-3a of this title” and the
Commission “shall deny such registration if it does not make such a finding.” 15
U.S.C. § 80b-3(c)(2).11 Here, the Commission made no finding at all on either
11
Even the use of “shall” in the statutory text is not sufficient to take the action out of
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score because it was understandably not on notice that this section even authorized
it to take a particular action on an amended registration submission. 12 Thus, there
was no “fixed or readily ascertainable standard” that would have guided it on this
matter.
The SEC having met the first prong of the test for applying the exception,
we proceed to the second prong: whether the employee’s duties were of the type
that the discretionary function exception was intended to protect. As set out above,
the exception is intended to protect any decision grounded in public policy, and all
discretionary decisions are presumed to be grounded in public policy.
As the Supreme Court explained in the context of the regulation of savings
and loan associations:
the discretionary function exception. See Ochran v. United States, 117 F.3d 495, 500–01 (11th
Cir. 1997) (“Ochran I”) (“We agree with the Government that the use of the word ‘shall’ in
describing the responsibilities of the AUSA does not necessarily mean that the Guidelines left no
room for the AUSA to exercise judgment or choice” because the Guidelines did not specify how,
when, or under what circumstances action was necessary.); Powers v. United States, 996 F.2d
1121, 1125 (11th Cir. 1993) (holding that “shall” not dispositive where “Congress has not
specifically prescribed a course of action.”).
12
Plaintiffs did not proceed on the statutory section that actually authorizes the SEC to
suspend the registration of a broker-dealer: § 80b-3(e). Perhaps they declined to so proceed
because the latter section permits suspension only when the Commission has made the required
findings on the record after notice and an opportunity for a hearing. Because the decision to
convene a hearing is obviously a discretionary judgment that would trigger application of the
discretionary function exception, Plaintiffs’ reluctance to rely on what would seem to be the apt
statutory provision for purposes of suspension of a registration is perhaps understandable. In any
event, during the time period in question, no hearing was ever held by the SEC to consider
suspension of Stanford Group.
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Where Congress has delegated the authority to an independent agency
or to the Executive Branch to implement the general provisions of a
regulatory statute and to issue regulations to that end . . . 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 are protected [by the discretionary function
exception.]
Gaubert, 499 U.S. at 323 (emphasis added).
The SEC is an independent agency, created by the Securities Exchange Act
of 1934 to regulate the securities markets and protect investors through its
enforcement of that and other statutes. See 15 U.S.C. § 78d.13 Its regulation of the
securities markets clearly involves the kinds of decisions “we would expect
inherently to be grounded in considerations of policy.” Autery, 992 F.2d at 1530–
31 (internal quotation marks omitted); Baer v. United States, 722 F.3d 168, 175 (3d
Cir. 2013) (noting that “there is a strong presumption that the SEC’s conduct is
13
As Congress explained in that statute:
[T]ransactions in securities as commonly conducted upon securities exchanges
and over-the-counter markets are effected with a national public interest which
makes it necessary to provide for regulation and control of such transactions and
of practices and matters related thereto, . . . to require appropriate reports to
remove impediments to and perfect the mechanisms of a national market system
for securities and a national system for the clearance and settlement of securities
transactions and the safeguarding of securities and funds related thereto, and to
impose requirements necessary to make such regulation and control reasonably
complete and effective, in order to protect interstate commerce, the national
credit, the Federal taxing power, to protect and make more effective the national
banking system and Federal Reserve System, and to insure the maintenance of
fair and honest markets in such transactions[.]
15 U.S.C. § 78b.
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susceptible to policy analysis”); see also Schmidt v. United States, 198 F.2d 32, 36
(7th Cir. 1952) (holding that SEC’s investigations are “clearly within the scope of
its discretionary authority”); Sprecher v.Von Stein, 772 F.2d 16, 18 (2d Cir. 1985)
(same). Indeed, as the Supreme Court has recognized, the legislative history of the
discretionary function exception indicates that it was “designed to preclude
application of the [FTCA] to a claim based upon an alleged abuse of discretionary
authority by a regulatory or licensing agency—for example, the Federal Trade
Commission, the Securities and Exchange Commission, the Foreign Funds Control
Office of the Treasury, or others.” Varig Airlines, 467 U.S. at 809 (quoting the
statement of Assistant Attorney General Francis M. Shea) (internal quotation
marks omitted). That being so, investigatory decisions by the SEC are the types of
decisions that the discretionary function exemption would be expected to shield.
Agreeing on this point, two of our sister circuits have recently applied the
discretionary function exception to preclude claims based on the SEC’s failure to
discover, investigate, and dissolve other Ponzi schemes. In Dichter-Mad Family
Partners, LLP v. United States, 709 F.3d 749, 750–51 (9th Cir. 2013), the Ninth
Circuit affirmed the dismissal of a complaint made by plaintiffs who lost money in
the Bernard Madoff Ponzi scheme. Laying out a long history of SEC failures to
identify and upset Madoff’s scheme, the plaintiffs alleged a breach of the SEC’s
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duties to investigate violations of the securities laws. Id. at 756–60. The Ninth
Circuit rejected the plaintiffs’ argument on the ground that the discretionary
function exception covered the actions taken (and not taken) in the course of the
investigation. Id. at 787. The court noted that, despite the presence of some
statutory duties couched in mandatory language, the weight of the complaint
involved poor performance of discretionary actions. Id. at 751 (quoting Sabow v.
United States, 93 F.3d 1445, 1453 (9th Cir. 1996) (“[T]he presence of a few,
isolated provisions cast in mandatory language does not transform an otherwise
suggestive set of guidelines into binding agency regulations.”)).
Similarly, in Baer, the Third Circuit dismissed a suit by plaintiffs injured in
the Madoff scheme that was premised on the incompetence of the SEC’s
investigations. 722 F.3d at 171–72. As in Dichter-Mad, the Baer plaintiffs
identified various regulatory duties framed in mandatory language, and contended
that those constituted a mandatory directive. Id. at 173–74. The court pointed out:
The regulations identified . . . do not prescribe any particular course of
action for the SEC to follow. At most, these regulations attempt to
limit the scope of discretion afforded the SEC during the course of an
investigation. While a violation of these regulations may amount to
an abuse of discretion, that is not sufficient to waive the federal
government’s sovereign immunity . . . .
Id. at 175 (citation omitted). On that basis, the Third Circuit also held that the
discretionary function exemption applied. Id. at 177.
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As Dichter-Mad and Baer emphasize, the duties that Plaintiffs’ registration
identify as being breached are duties that fall with the discretion of the SEC. As
such, we hold that, in the unlikely event that § 80b-3(c) authorized the SEC to
revoke a registration based on a subsequent amendment, the discretionary function
exception would apply, and Plaintiffs’ registration claim would fall.
2. Plaintiffs’ Notification Claim
a. The SEC’s Statutory Duty to Notify SIPC of Stanford
Group’s Financial Difficulties
Plaintiffs also claim that the SEC was required by statute to notify SIPC that
Stanford Group was in financial difficulty. SIPC is a non-profit corporation with
which Stanford Group, as a registered broker-dealer, was required to maintain
membership. Once notified that a member is in financial difficulty, SIPC can,
among other things, file an application for a protective decree against that member
in a court of competent jurisdiction. See Securities Investor Protection Act of
1970, 15 U.S.C. §§ 78aaa-lll; 15 U.S.C. §§ 78eee(a)(3)-(4), (b). The specific
statutory duty upon which Plaintiffs rely provides:
If the Commission or any self-regulatory organization is aware of
facts which lead it to believe that any broker or dealer subject to
its regulation is in or is approaching financial difficulty, it shall
immediately notify SIPC, and, if such notification is by a self-
regulatory organization, the Commission.
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15 U.S.C. § 78eee(a)(1) (emphasis added). As noted, despite indications that
Stanford Bank was running a Ponzi scheme, the SEC let twelve years pass before
taking any public action. Plaintiffs contend that had the SEC earlier notified SIPC,
the latter might have taken action to protect existing and future investors. It is
from this failure to act, in alleged violation of § 78eee(a)(1), that Plaintiffs have
derived their notification claim.
b. Interplay Between the SEC’s Duty to Notify and the
Misrepresentation Exception
Whether or not the SEC violated § 78eee(a)(1)’s provision requiring it to
notify SIPC of Stanford’s financial issues, the Government contends that it is
protected from liability through the misrepresentation exception. Like the
discretionary function exception, the misrepresentation exception preserves the
United States’ sovereign immunity and thereby protects the Government from tort
liability that it might otherwise face under the FTCA. The district court concluded
that the misrepresentation exception applies, and it dismissed Plaintiffs’
notification claim. We agree.
The misrepresentation exception is set out in 28 U.S.C. § 2680(h). That
section provides a list of torts for which there can be no waiver of sovereign
immunity. Specifically,
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The provisions of this chapter [Chapter 171] and section 1346(b) of
this title shall not apply to —
….
(h) Any claim arising out of assault, battery, false imprisonment,
false arrest, malicious prosecution, abuse of process, libel, slander,
misrepresentation, deceit, or interference with contract rights . . . .
28 U.S.C. § 2680(h) (emphasis added).
The phrase “arising out of” is interpreted broadly to include all injuries that
are dependent upon one of the listed torts having been committed. United States v.
Shearer, 473 U.S. 52, 55 (1985) (“Section 2680(h) does not merely bar claims for
assault or battery; in sweeping language it excludes any claim arising out of assault
or battery.”) (emphasis in original). So, a claim will be deemed to have arisen
from a § 2680 excepted tort if the governmental conduct that is essential to the
plaintiff’s cause of action is encompassed by that tort. And this is so even if the
plaintiff has denominated, as the basis for the cause of action, a tort not found
within § 2680(h)’s list of excepted torts. See Metz v. United States, 788 F.2d
1528, 1534 (11th Cir. 1986)); accord O’Ferrell v. United States, 253 F.3d 1257,
1266 (11th Cir. 2001); Atorie Air, Inc. v. Fed. Aviation Admin., 942 F.2d 954, 958
(5th Cir. 1991); see also Shearer, 473 U.S. at 55 (noting, in discussing the battery
exception, that “[n]o semantical recasting of events can alter the fact that the
battery was the immediate cause of Private Shearer’s death and, consequently, the
basis of respondent’s claim”).
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Accordingly, it is “the substance of the claim and not the language used in
stating it which controls.” Gaudet v. United States, 517 F.2d 1034, 1035 (5th Cir.
1975). 14 And if the governmental conduct that is essential to proving a plaintiff’s
claim would be covered by the misrepresentation exception, then the Government
is shielded from liability by sovereign immunity, no matter how the plaintiff may
have framed his claim or articulated his theory. In other words, “a plaintiff cannot
circumvent the misrepresentation exception simply through the artful pleading of
its claims.” JBP Acquisitions, 224 F.3d at 1264. Instead, the misrepresentation
exception applies “when the basis for the . . . action is an underlying claim for
misrepresentation.” Id.
So, then how does one define a claim of misrepresentation for purposes of
determining whether the misrepresentation exception applies? The Supreme Court
has characterized “misrepresentation” as being a breach of the “duty to use due
care in obtaining and communicating information upon which [another] may
reasonably be expected to rely in the conduct of his economic affairs.” United
States v. Neustadt, 366 U.S. 696, 706 (1961). Accordingly, “the essence of an
action for misrepresentation, whether negligent or intentional, is the
14
In Bonner v. City of Prichard, Ala., we held “that the decisions of the United States
Court of Appeals for the Fifth Circuit (the ‘former Fifth’ or the ‘old Fifth’), as that court existed
on September 30, 1981, handed down by that court prior to the close of business on that date,
shall be binding as precedent in the Eleventh Circuit, for this court, the district courts, and the
bankruptcy courts in the circuit.” 661 F.2d 1206, 1207 (11th Cir. 1981).
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communication of misinformation on which the recipient relies.” Block v. Neal,
460 U.S. 289, 296 (1983). Collapsing the above guidance into one inquiry, we
therefore examine Plaintiffs’ notification claim to determine if the latter is based
on the communication or miscommunication of information upon which others
might be expected to rely in economic matters. If it does, and if a flawed
communication caused the Plaintiffs’ injury, then Plaintiffs’ claim will be
construed as a misrepresentation claim for which the analogous exception under
§ 2680(h) applies, and sovereign immunity will therefore bar the claim.
c. Application to Plaintiffs’ Notification Claim
As the statutory basis for their notification claim, Plaintiffs rely on 15 U.S.C.
§ 78eee(a)(1), which states that “[i]f the [SEC] is aware of facts which lead it to
believe that any broker or dealer subject to its regulation is in or is approaching
financial difficulty, it shall immediately notify SIPC.” The Plaintiffs allege that
the SEC was aware that Stanford Group was in or approaching financial difficulty
and that, through its longstanding silence, the SEC violated its statutory duty to
notify SIPC of this fact. Thus, Plaintiffs do not fault the SEC for a
miscommunication regarding Stanford Group’s solvency; they fault the SEC for its
non-communication of information regarding that issue.
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But unfortunately for Plaintiffs, miscommunication and non-communication
yield the same result for purposes of the misrepresentation exception, because the
misrepresentation exception “encompasses failure to communicate as well as
miscommunication.” JBP Acquisitions, 224 F.3d at 1265 n.3 (citing Neustadt, 366
U.S. at 706-07); Muniz-Rivera v. United States, 326 F.3d 8, 13 (1st Cir. 2003)
(citing JBP Acquisitions, 224 F.3d at 1265) (“The case law makes manifest that the
prophylaxis of the misrepresentation exception extends to failures of
communication.”); Lawrence v. United States, 340 F.3d 952, 958 (9th Cir. 2003)
(citing Neustadt, 366 U.S. at 705-06) (“The misrepresentation exception shields
government employees from tort liability for failure to communicate information,
whether negligent, or intentional.”).
Therefore, because Plaintiffs’ claim is focused on non-communication of
financial information by the SEC, the misrepresentation exception springs into
action to prevent a waiver of the Government’s sovereign immunity. Resisting this
seemingly straightforward application of the misrepresentation exception,
however, Plaintiffs attempt to analogize their facts to cases in which courts have
refused to apply the misrepresentation exception even when there has been a
miscommunication or non-communication by the governmental actor. As we
explain, Plaintiffs’ cited cases are distinguishable.
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Addressing first those cases in which courts have refused to apply the
misrepresentation exception to claims asserting pecuniary loss, even when a
misrepresentation by the governmental agency has occurred, it is true that the
misrepresentation exception “does not bar negligence actions which focus not on
the Government’s failure to use due care in communicating information, but rather
on the Government’s breach of a different duty.” Block v. Neal, 460 U.S. 289, 297
(1983); JBP Acquisitions, 224 F.3d at 1265 (same). In Block, a governmental
agency oversaw the construction of the plaintiff’s house, but the construction
turned out to be shoddy. Block, 460 U.S. at 297. The agency conducted three
inspections throughout the project and represented that the construction met
appropriate standards, but the agency’s statement was wrong. Id. at 292, 296.
Eventually learning that she had purchased a lemon, the plaintiff-homeowner sued.
Holding that the misrepresentation exception did not apply, the Supreme
Court acknowledged that the governmental agency had made misrepresentations to
the plaintiff when it provided inaccurate inspection reports. Yet, the Court noted,
the plaintiff was proceeding under a state law Good Samaritan cause of action on a
claim that the agency had voluntarily undertaken supervision of the construction.
Id. at 297. Such a claim does not fall within the tort of misrepresentation. Further,
while the agency may have made misrepresentations to the plaintiff, through
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erroneous inspection reports, it was the negligent oversight of the construction of
the home that allegedly caused the injury, and such a claim is not barred by the
misrepresentation exception. Id. at 298.
The Supreme Court contrasted the facts in Block with those at issue in
United States v. Neustadt, 366 U.S. 696 (1961), a home construction case in which
the Court had held that the misrepresentation exception did apply. In Neustadt, the
plaintiffs had relied on a federal agency’s erroneous appraisal of a house, and, as a
result, paid more than it was worth. Id. at 700–01. Although plaintiffs alleged that
the basis of their claim was the agency’s negligent inspection of the house, the
Supreme Court concluded that the claim actually arose from a contention that the
agency had made a misrepresentation. As such, the claim was barred by the
misrepresentation exception. Id. at 711.
Reconciling its holding in Block with its earlier holding in Neustadt, the
Supreme Court noted that the only basis for the Neustadt action was a claim that
the federal agency had made a misstatement. With only a misstatement claim, the
misrepresentation exception necessarily applied. But the claim in the Block action
had rested not on the agency’s duty to make accurate communications, but instead
on a different duty: its duty to use due care in supervising a construction project.
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Accordingly, the misrepresentation exception did not apply in Block. Block, 460
U.S. at 296-97.
In short, if a plaintiff can show that the Government has breached a duty
distinct from the duty not to make a misrepresentation and if that breach has
caused the plaintiff’s injury, the fact that the Government may have also made a
misrepresentation will be insufficient to trigger the misrepresentation exception to
a waiver of sovereign immunity. As the Ninth Circuit has explained, “[t]he
Government is liable for injuries resulting from negligence in performance of
operational tasks even though misrepresentations are collaterally involved. It is
not liable, however, for injuries resulting from commercial decisions made in
reliance on government misrepresentations.” Guild v. United States, 685 F.2d 324,
325 (9th Cir. 1982).
Relying on the reasoning of Block, Plaintiffs liken their claim to cases in
which courts have refused to apply the misrepresentation exception to bar claims
of economic loss. But in those cases, as with Block, courts have identified some
separate duty—usually referred to as an “operational” duty—that is both distinct
from the duty to communicate and essential to the plaintiff’s claim. For example,
in JM Mechanical Corporation v. United States, 716 F.2d 190, 191 (3d Cir. 1983),
the plaintiff, a construction subcontractor, was left unpaid when the general
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contractor had failed to secure performance bonds required by the Department of
Housing and Urban Development (“HUD”). After learning that the contractor had
failed to acquire the bonds, HUD then failed in its own duty to obtain such bonds,
and it also misrepresented to the subcontractor that the contractor had acquired the
bonds. Id. at 191-92. The Third Circuit held that the essence of the claim was “the
failure of the government to secure new bonds, not . . . the government’s failure to
tell [the subcontractor] of the failure of the original bonds.” Id. at 195. That is,
like Block, the sufficient cause of the injury was the breach of a duty that was
distinct from the duty not to miscommunicate. A subsequent and collateral
misrepresentation that merely aggravated the injury did not suffice to invoke the
misrepresentation exception.
Along similar lines are cases cited by Plaintiffs that involve the mishandling
of records. In these cases, a plaintiff was denied a benefit because the government
misdelivered or misfiled some essential document. See, e.g., Metro. Life Ins. Co.
v. Atkins, 225 F.3d 510, 511-13 (5th Cir. 2000) (plaintiff was denied insurance
benefits because the government incorrectly filed an insurance beneficiary form
that lacked the proper signature to make it effective); Devlin v. United States, 352
F.3d 525, 527-28 (2d Cir. 2003) (Postal Service failed to forward an employee’s
life insurance beneficiary form to the Office of Personnel Management, a failure
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that subsequently deprived the beneficiary of the policy benefits). Yet, in both
Atkins and Devlin, the cause of the plaintiff’s injury was the clerical error itself,
which “operational” act did not trigger application of the misrepresentation
exception. The agency’s subsequent failure to disclose its error to the plaintiff did
not change the fact that it was the “operational” act that was the basis for the
plaintiff’s claim. 15
The cases cited by Plaintiffs are therefore distinguishable from this case.
The poor supervision of the construction project in Block, the failure to secure
construction bonds in JM Mechanial, and the filing errors in Atkins and Devlin
were all acts of the governmental agency and it was these acts that caused the
injuries the plaintiffs suffered. Even though subsequent failures to notify the
plaintiffs of the agency’s misdeeds may have aggravated the problems, the
economic injuries suffered by the plaintiffs in those cases did not “arise out of” any
misrepresentation by the agency.
15
Indeed, in Atkins, the Fifth Circuit held that the evidence, in the light most favorable to
the plaintiff, suggested that the deceased had signed the designation of beneficiary form and that
the personnel department of the federal agency had simply misplaced that form. A breach of that
duty constituted the breach of an operational task. The court indicated that if instead the
evidence had indicated that there was no signed form, but the personnel department had failed to
communicate to the deceased the need to sign the form, then the case might well be covered by
the misrepresentation exception. Metro. Life Ins. Co. v. Atkins, 225 F.3d 510, 512-13 (5th Cir.
2000).
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In contrast, Plaintiffs’ injuries here arose precisely from the SEC’s failure to
notify SIPC. As Plaintiffs allege, it was this notification that “would have set in
motion a process through which the [Plaintiffs] would have learned of the Ponzi
scheme and been able to avoid or mitigate their damages.” Thus, it was the SEC’s
failure to communicate particular information to SIPC that led to Plaintiffs’
economic injuries. And, to repeat, a miscommunication or failure to communicate,
in this context, gives rise to the misrepresentation exception.
Faced with this grim reality, Plaintiffs attempt to transform the SEC’s duty
to notify SIPC into an “operational” task devoid of any communicative aspect.
Plaintiffs argue that they are not faulting the SEC for the substance, or absence of
substance, of any particular communication. In fact, Plaintiffs go so far as to assert
that “the content of the communication [to be sent to the SIPC] is immaterial to the
claim.” Instead, Plaintiffs argue that, as in Atkins and Devlin, where the mere
presence of the right form in the right place would have sufficed to prevent the
plaintiffs’ injuries, the SEC merely had to complete the physical act of sending
something, anything, to SIPC. Accordingly, Plaintiffs argue, the SEC’s failure to
perform this “operational” act takes this case outside of the misrepresentation
exception.
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But this argument makes no sense at all. Obviously, it is the content of any
writing sent to SIPC that would be critical to that corporation’s determination of
the appropriate action to take, not the fact that SIPC’s mailroom may have
happened to log in some undescribed communication from the SEC. The district
court rejected Plaintiffs’ effort to end-run the misrepresentation exception with this
semantical sleight-of-hand, and so do we. 16
Finally, Plaintiffs also try to analogize their case to cases where courts have
held that the duty to warn is not covered by the misrepresentation exception.
However, the misrepresentation exception did not apply in these “duty to warn”
cases cited by Plaintiffs cite because the injuries involved in those cases did not
arise from the plaintiffs’ commercial decisions based on the governments’
misrepresentations. See, e.g., Mandel v. United States, 793 F.2d 964, 967 (8th Cir.
1986) (park ranger recommended a body of water for swimming, but negligently
failed to warn the swimmer of submerged rocks, upon which the swimmer then
suffered a serious head injury); McNeil v. United States, 897 F. Supp. 309, 310-11
16
The district court noted in its order granting dismissal:
The crucial element in the Plaintiffs’ chain of causation is the alleged
failure to communicate information about Stanford’s company. The
Plaintiffs cannot disguise the essence of their negligent misrepresentation
claim by repackaging the SEC’s alleged negligence from having failed to
‘notify’ or ‘report’ . . . to having failed to send the required notification.
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(E.D. Tex. 1995) (plaintiffs injured in a fire when the Farmer’s Home
Administration (“FmHA”) failed to inform them that an inspection of a house the
plaintiffs were purchasing had discovered a faulty smoke alarm and FmHA had
failed to repair the alarm); Lemke v. City of Port Jervis, 991 F. Supp. 261, 263-64
(S.D.N.Y. 1998) (negligent home-safety inspectors failed to identify lead pipes,
which poisoned the plaintiff).
As Neustadt explained, the misrepresentation exception applies to the breach
of the “duty to use due care in obtaining and communicating information upon
which that party may reasonably be expected to rely in the conduct of his
economic affairs.” 366 U.S. at 706. The injury Plaintiffs suffered here was the
loss of their investment money, which is an economic injury arising from a
commercial decision that Plaintiffs may not have made had the SEC notified SIPC
of Stanford Group’s financial frailty. Thus, the failure-to-warn cases, which
involve non-economic injuries, are not on point.
For all the above reasons, we conclude that the § 2680(h) misrepresentation
exception applies and the Government enjoys sovereign immunity from this claim.
Therefore, we affirm the district court’s dismissal of the notification claim, as well
as the registration claim.
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IV. Alternative Ground For Dismissal Under Rule 12(b)(6)
We affirm the district court’s dismissal of Plaintiffs’ claims for lack of
subject matter jurisdiction under Rule 12(b)(1) under the assumption that the
applicability of a § 2680 exceptions deprives a court of jurisdiction over tort claims
made against the Government. This conclusion is consistent with the language of
§ 2680 and § 1346(b), which make the jurisdictional grant of the latter section
inapplicable when one of the former section’s exceptions to the FTCA’s waiver of
sovereign immunity applies. The Supreme Court has also expressly stated that
sovereign immunity, which the § 2680 exceptions preserve, is “jurisdictional in
nature.” Meyer, 510 U.S. at 475. Finally, this Court has consistently treated the §
2680 exceptions as jurisdictional, as evidenced by the fact that we have considered
their existence before reaching other statutory prerequisites that likewise could be
said to enjoy some claim to jurisdictional status. See, e.g., Powers v. United States,
996 F.2d 1121, 1123 n.2 (11th Cir. 1993) (deciding that the discretionary function
exception applied, and thus not addressing the argument that “the plaintiffs cannot
bring this suit, because a private party would not be liable under like
circumstances”); Mesa v. United States, 123 F.3d 1435, 1439 n.6 (11th Cir. 1997)
(“In light of our conclusion that the appellants’ claim is barred by the discretionary
function exception, we need not address the United States’ argument that the
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appellants have failed to allege facts sufficient to support recovery under Florida
law.”); Ochran v. United States, 117 F.3d 495, 504 n.6 (11th Cir. 1997) (“Ochran
I”) (noting that the discretionary function exception is jurisdictional and stating
that the Court had not yet considered the question of a valid state law claim).
Other circuits have expressly agreed with this approach. See Lesoeur v. United
States, 21 F.3d 965, 967 (9th Cir. 1994) (“[F]ederal courts do not have subject
matter jurisdiction over tort actions based on federal defendants’ performance of
discretionary functions.”); White-Squire v. U.S. Postal Service, 592 F.3d 453, 457-
58 (3d Cir. 2010) (chapter 171 provisions are jurisdictional).
For these reasons, we affirm the district court’s dismissal of these claims
based on its lack of subject matter jurisdiction. That said, we also recognize that in
its recent jurisprudence, the Supreme Court has become more reluctant, when
sanctioning the dismissal of some claims, to base its rejection on jurisdictional
grounds, as opposed to a deficiency in the merits of the claim. For example, in
reversing the Second Circuit, the Supreme Court explained that the Copyright
Act’s requirement that copyright holders register their works before suing for
infringement was not a jurisdictional prerequisite, but rather “a precondition to
filing a claim that does not restrict a federal court’s subject-matter jurisdiction.”
Reed Elsevier, Inc. v. Muchnick, 559 U.S. 154, 157 (2010). Explaining the
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distinction in Morrison v. National Australia Bank Ltd., 561 U.S. 247, 254 (2010),
the Court noted that whereas jurisdictional questions go to the court’s “power to
hear a case,” merits questions ask “whether the allegations the plaintiff makes
entitle him to relief.” (internal quotation marks omitted). This is a distinction with
a difference, because:
Branding a rule as going to a court’s subject-matter jurisdiction alters
the normal operation of our adversarial system . . . Courts do not
usually raise claims or arguments on their own. But federal courts
have an independent obligation to ensure that they do not exceed the
scope of their jurisdiction, and therefore they must raise and decide
jurisdictional questions that the parties either overlook or elect not to
press.
Henderson ex rel. Henderson v. Shinseki, 562 U.S. 428, ___, 131 S. Ct. 1197, 1202
(2011). That is, classifying a prerequisite to suit as jurisdictional makes it the
court’s responsibility to raise the issue sua sponte even if the parties do not address
it themselves.
The FTCA has not been immune to the recent debate concerning which side
of the jurisdiction/merits pendulum a particular statutory defect in a claim should
lie. Relying on the Supreme Court’s holding in Kontrick v. Ryan, 540 U.S. 443,
455 (2004), a case involving bankruptcy procedure, the Seventh Circuit “no longer
treats § 2675(a) [which requires exhaustion of administrative claims before
commencing suit under the FTCA] as a jurisdictional prerequisite.” Smoke Shop,
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LLC v. United States, 761 F.3d 779, 786-87 (7th Cir. 2014). We, however, have
characterized this provision as jurisdictional. Dalrymple v. United States, 460 F.3d
1318, 1324 (11th Cir. 2006). More recently, the Ninth Circuit has held that the
statute of limitations applicable to the FTCA, 28 U.S.C. § 2401(b), is not
jurisdictional. Kwai Fun Wong v. Beebe, 732 F.3d 1030, 1044 (9th Cir. 2013) (en
banc), cert. granted sub nom. United States v. Kwai Fun Wong, ___ U.S. ___, 134
S. Ct. 2873 (June 30, 2014) (decision pending).
In Kwai Fun Wong, the Ninth Circuit made clear that it was expressing no
view on the jurisdictional status of the chapter 171 provisions of Title 28. Id. at
1044 n.10. However, in the wake of this general jurisprudential shift, the Seventh
Circuit has taken the position that the statutory exceptions to the United States’
waiver of sovereign immunity, found in § 2680(a)–(n), “limit the breadth of the
Government’s waiver of sovereign immunity, but they do not accomplish this task
by withdrawing subject-matter jurisdiction from the federal courts.” Parrott v.
United States, 536 F.3d 629, 634 (7th Cir. 2008). Instead, the applicability of these
exceptions goes to the plaintiff’s entitlement to relief. As a result of this
conclusion, the Seventh Circuit held that it is now “the Government’s burden to
assert these exceptions if and when it seeks to defeat a claim because of them.” Id.
at 634-35.
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Nonetheless, given the texts of the applicable statutes, the general
admonition by the Supreme Court that sovereign immunity is jurisdictional, and
our own precedent, we will treat the § 2680 exceptions as jurisdictional in this
case. We can comfortably do so because we conclude that the result of this case
would be the same whether the absence of a § 2680 exception operates as a
jurisdictional prerequisite or instead as a question going to the merits of Plaintiffs’
claims. In Morrison, the Supreme Court concluded that the Second Circuit had
mistakenly treated a provision of federal securities laws as jurisdictional, when it
affirmed a Federal Rule of Civil Procedure 12(b)(1) dismissal. Instead, the
Supreme Court concluded that, based on the same defect in the complaint, the case
should have been dismissed pursuant to Rule 12(b)(6) for failure to state a claim.
561 U.S. at 253-54. The Supreme Court held that remand was unnecessary,
however, because “a remand would only require a new Rule 12(b)(6) label for the
same Rule 12(b)(1) conclusion.” Id. at 254.
We believe the same approach applies here. Should the § 2680 exceptions
someday be interpreted as going to the merits of a plaintiff’s claim, rather than the
district court’s jurisdiction to hear the case, then for the same reasons that we
affirm the dismissal for lack of subject matter jurisdiction, we would also affirm
for failure to state a claim upon which relief could be granted.
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V. Conclusion
For the above reasons, we AFFIRM the district court’s dismissal of
Plaintiffs’ claims.
54