Franklin Savings Corp. v. United States

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAY 4 1999
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT
FRANKLIN SAVINGS
CORPORATION; FRANKLIN
SAVINGS ASSOCIATION,
Plaintiffs-Appellants,
No. 97-3220
v.
UNITED STATES OF AMERICA;
FEDERAL DEPOSIT INSURANCE
CORPORATION, as successor-in-
interest to the Resolution Trust
Corporation,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Kansas
(D.C. No. 95-CV-2100-GTV)
R. Pete Smith, (Jonathan A. Margolies with him on the brief), of McDowell, Rice,
Smith & Gaar, Kansas City, Missouri for Appellants.
Michael S. Raab, Attorney, Appellate Staff, Civil Division, U. S. Department of
Justice, Washington, D.C. (Mark B. Stern, Attorney, Appellate Staff, Civil
Division, U. S. Department of Justice, with him on the brief) for Appellees.
Before BALDOCK, KELLY, and MURPHY, Circuit Judges.
MURPHY, Circuit Judge.
This appeal concerns the breadth of the discretionary-function exception to
the waiver of sovereign immunity under the Federal Tort Claims Act (FTCA).
Plaintiffs, who owned most of the stock of the Franklin Savings Association (FSA
or the Association), sued the United States and the Resolution Trust Corporation 1
(RTC), seeking damages allegedly caused by the RTC’s conduct as FSA’s
conservator. Before any discovery, the district court dismissed the suit under
Federal Rule of Civil Procedure 12(b)(6) on the basis that plaintiffs’ claims fell
within the FTCA’s discretionary-function exception. This court has jurisdiction
of plaintiffs’ appeal under 28 U.S.C. § 1291.
Plaintiffs primarily argue that their claims arise not from the RTC’s
performance of a discretionary function, but from its violation of specific,
mandatory duties while managing FSA. Those duties include a specific dictate in
the order creating the conservatorship that the RTC conserve and not liquidate the
Association. Plaintiffs argue that the RTC nonetheless intentionally effected a de
facto liquidation of FSA under the guise of conserving it. They thus allege that
the RTC acted in subjective bad faith while performing acts which, viewed
The Federal Deposit Insurance Corporation (FDIC) is now a defendant as the
1
RTC’s successor-in-interest. See 12 U.S.C. § 1441a(m)(1).
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objectively, fall within the scope of a discretionary function. This poses the
question whether such allegations should bar dismissal under the discretionary-
function exception. Because this court concludes that the exception’s purpose
compels dismissal of any claim whose ultimate resolution would require judicial
scrutiny of an official’s good faith or subjective decisionmaking, we AFFIRM .
II. PROCEDURAL AND FACTUAL BACKGROUND
This is the third appeal to this court and the seventh published opinion
involving disputes over the conservation and liquidation of the long-gone but not
forgotten Franklin Savings Association. See Franklin Sav. Ass’n v. Office of
Thrift Supervision , 740 F. Supp. 1535 (denying summary judgment), 742 F. Supp.
1089 (D. Kan.1990) (granting judgment after trial), rev'd , 934 F.2d 1127 (10th
Cir. 1991) [ Franklin I ]; Franklin Sav. Ass’n v. Office of Thrift Supervision , 821 F.
Supp. 1414 (D. Kan.1993), aff’d , 35 F.3d 1466 (10th Cir. 1994) [ Franklin II ];
Franklin Savings Corp. v. United States , 970 F. Supp. 855 (D. Kan. 1997)
(decision now on appeal) [ Franklin III ]. This court has distilled the following
summary of the litigation from Franklin II . See 35 F.3d at 1468.
In 1990 the Director of the Office of Thrift Supervision (OTS ) determined
that FSA was “in an unsafe and unsound condition to transact business” and
appointed the RTC as its conservator. 2
FSA and its parent, Franklin Savings
2
For a “generalized and simplified overview of the facts” leading to the
conservatorship, see Franklin I, 934 F.2d at 1133–35. For a more detailed
(continued...)
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Corporation (FSC), filed suit under the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 (FIRREA) to remove the conservator. See 12
U.S.C. § 1464(d)(2)(E) (1989) (authorizing appointment and judicial review); see
generally 12 U.S.C. §§ 1461–1470 (1989). While the district court held the
appointment arbitrary and capricious, this court reversed, holding that review of
the decision to appoint a conservator is limited to the administrative record and
that said record supported the decision. See Franklin I , 742 F. Supp. at 1126,
rev’d , 934 F.2d at 1149. In 1992, after the first suit had been dismissed, the OTS
changed the RTC’s role from conservator to receiver. See 57 Fed. Reg. 41,969(1992). FSA and FSC again sued. In 1994 this court affirmed the dismissal of
that suit on the ground the decision to appoint a receiver is not subject to judicial
review. See Franklin II , 821 F. Supp. at 1418–24, aff’d , 35 F.3d at 1469–71.
The present action, meanwhile, arose from plaintiffs’ 1993 filing of an
adversary complaint against the RTC in bankruptcy court, in a proceeding
concerning the estate of FSC. See Franklin III , 970 F. Supp. at 860. The
complaint sought damages under the FTCA based on the RTC’s acts as
conservator. See id. The district court withdrew the reference from the
bankruptcy court, and plaintiffs amended their complaint to name the FDIC, the
2
(...continued)
account, see Franklin I, 742 F. Supp. at 1099–1124.
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RTC’s successor-in-interest. 3
See id. The government moved to dismiss all
claims for lack of subject-matter jurisdiction. The court granted the motion, and
this appeal followed. 4
On appeal, plaintiffs primarily challenge the dismissal of their FTCA claim.
They premise that claim on the RTC’s conduct in 1990–92, while it was acting
under an order appointing it “as conservator . . . not for the purpose of
liquidation.” Plaintiffs argue that the RTC disregarded that specific mandate,
ignored various narrower mandates in its own manuals governing
conservatorships, and breached its fiduciary duties as a conservator by
intentionally effecting a de facto liquidation of the Association.
Plaintiffs specifically decry four sets of transactions from which they infer
the RTC’s sub rosa intent to liquidate the Association. Three of these involve
allegedly precipitate, all-or-nothing sales of asset portfolios in saturated markets.
The fourth involves an omission: before issuing reports on FSA’s capital, the
RTC did not exercise its statutory power to repudiate burdensome, high-interest
bonds issued by FSA. The capital reports, which reflected asset write-downs that
had decreased FSA’s equity, caused the bond trustee to defease the bonds,
3
Plaintiffs also added a claim under the Administrative Procedure Act (APA),
which the court also dismissed. See Franklin III, 970 F. Supp. at 860, 863–64.
On appeal, plaintiffs advance no reason to reinstate that claim other than the
bankruptcy-code argument discussed infra at 7–9.
4
Plaintiffs’ motion to supplement the record on appeal is granted.
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triggering large losses for FSA. Plaintiffs argue that the RTC engaged in such
conduct in order to deplete FSA’s capital and thereby retrospectively justify the
OTS’s appointment of a conservator. They allege that the RTC caused FSA to
lose some $500 million in potential profits, thus ensuring the Association’s future
liquidation rather than its conservation and eventual return to plaintiffs’ control.
III. DISCUSSION
Plaintiffs’ complaint included two damage claims pertinent to this appeal:
one against the United States under the FTCA, and one against the FDIC at
common law. 5
On appeal, the plaintiffs assert three ways the government has
5
Plaintiffs sued in the names of both FSC and FSA. The Government disputed
their right to sue in either capacity. It argued that FSA had not filed an
administrative claim, as the FTCA requires. See Franklin III, 970 F. Supp. at861 (citing 28 U.S.C. § 2675(a)). FSC had filed a claim, but the Government
argued that it could not bring either a shareholder-derivative suit, as it had not
first demanded that FSA’s directors file suit, or a direct claim, as its injuries were
derivative. See id. The district court agreed that FSA could not sue, and that
FSC could not sue directly. It held, however, that FSC could bring a derivative
claim, because it would have been futile to demand of the FDIC, which now
directs the Association, that it essentially sue itself. See id. at 861–63.
Both parties appeal those rulings, but this court need not resolve those
issues. Our affirmance on the discretionary-function exception disposes of all of
plaintiffs’ claims, direct or derivative. Whether a suit falls within the exception
is a threshold question of subject-matter jurisdiction. See, e.g., Tippett v. United
States, 108 F.3d 1194, 1196-97 (10th Cir. 1997); Daigle v. Shell Oil Co., 972 F.2d
1527, 1537 (10th Cir. 1992). Neither party suggests that the inquiry differs if the
suit is direct or derivative. Only if this court were to hold that there is subject-
matter jurisdiction under the FTCA, or under another waiver of immunity, would
we have to decide whether Kansas law entitles plaintiffs to sue directly,
derivatively, or neither. This is true even if we also deem the latter questions
“jurisdictional.” See Arizonans for Official English v. Arizona, 520 U.S. 43,
66–67 (1997) (holding that court may assume standing, despite grave doubts, in
(continued...)
-6-
waived sovereign immunity: (1) under the Bankruptcy Code, 11 U.S.C. § 106;
(2) under the FTCA, because the discretionary-function exception does not apply;
and (3) under the RTC’s and FDIC’s sue-and-be-sued clauses. 6
A. Plaintiffs Have Waived Reliance on Bankruptcy Code § 106
Plaintiffs’ first argument is easily dispatched, for their complaint did not
allege Bankruptcy Code § 106 as a basis for subject-matter jurisdiction, and they
never sought leave to amend their complaint to do so, or in any way asked the
district court to assume jurisdiction under that provision. Plaintiffs address this
problem by invoking the long-established rule that defects in subject-matter
jurisdiction can never be waived and may be raised at any time on appeal. See
Mansfield, Coldwater & Lake Mich. Ry. v. Swan , 111 U. S. 379, 382 (1884); Fed.
R. Civ. P. 12(h)(3); and, e.g., Laughlin v. K Mart Corp. , 50 F.3d 871, 873 (10th
Cir. 1995). This court, however, has held that “our responsibility to ensure even
sua sponte that we have subject matter jurisdiction before considering a case
5
(...continued)
order to decide mootness, as both questions concern Article III jurisdiction, not
the merits); Cross-Sound Ferry Servs., Inc., v. ICC, 934 F.2d 327, 341 (D.C. Cir.
1991) (“[C]ourts properly rest on one jurisdictional ground instead of another.”),
overruled in other part by Steel Co. v. Citizens for a Better Envir., 523 U.S. 83,
__, 118 S.Ct. 1003, 1012 (1998).
6
Plaintiffs also briefly argue that dismissal before discovery was premature. They
develop this argument so superficially, however, as to waive it. See, e.g., Sports
Racing Servs., Inc. v. Sports Car Club of Am., Inc., 131 F.3d 874, 880 & n.9 (10th
Cir. 1997) (holding that party who noted issue and made “several broad,
conclusory statements” on appeal waived argument for failure to develop).
-7-
differs from our discretion to eschew untimely raised legal theories which may
support that jurisdiction.” Daigle v. Shell Oil Co. , 972 F.2d 1527, 1539 (10th Cir.
1992); see also United States ex rel. Ramseyer v. Century Healthcare Corp. , 90
F.3d 1514, 1518 n.2 (10th Cir. 1996) (declining to consider sua sponte a basis for
jurisdiction not argued below or on appeal).
Plaintiffs attempt to distinguish Daigle . They acknowledge that this court
refused to consider a waived argument supporting jurisdiction of Daigle’s suit.
They argue, however, that we did so because the argument involved disputed
factual issues on which the district court had made no findings. Plaintiffs assert
that their bankruptcy argument, by contrast, presents “a pristine legal question.”
Plaintiffs misread Daigle . This court held that we have no duty to consider
waived arguments supporting subject-matter jurisdiction. See 972 F.2d at 1539.
We then noted our discretion to ignore a waiver, in any case, if “presented with a
strictly legal question the proper resolution of which is beyond doubt.” Id. 7 In
declining to apply that exception, this court saw no need to “delve into an in depth
analysis” of the jurisdictional issue, instead simply noting that Daigle’s new
arguments “[did] not go unchallenged.” Id. at 1540. 8
The same is true here:
7
Courts may also ignore a waiver “when manifest injustice would otherwise
result.” Daigle, 972 F.2d at 1539. Plaintiffs do not suggest that we must over-
look their waiver of the § 106 argument in order to avoid “manifest injustice.”
This court did note the lack of a fully developed record, but we relied equally on
8
Daigle’s failure to “undoubtedly demonstrate[] an unequivocal waiver of
(continued...)
-8-
plaintiffs argue plausibly that the government waives its discretionary-function
immunity by filing a claim in bankruptcy against the victim’s estate. The
government argues plausibly to the contrary. Plaintiffs may have shown that the
legal question they raise is “pristine,” but they have not shown, as they must, that
its “proper resolution . . . is beyond doubt.” Id. at 1539. This court thus declines
to overlook their waiver.
B. The Discretionary-Function Exception to the FTCA’s Waiver of
Sovereign Immunity
1. Standard of Review
The government moved to dismiss the FTCA claims under Rules 12(b)(1)
and (6), and the court treated the motion as one to dismiss for failure to state a
claim under Rule 12(b)(6). See Franklin III , 970 F. Supp. at 860–61. 9
As the
court recognized, it must convert a Rule 12(b)(1) motion to one under Rule
12(b)(6), or for summary judgment, “‘[i]f the jurisdictional question is intertwined
with the merits of the case.’” Bell v. United States , 127 F.3d 1226, 1228 (10th Cir.
1997) (quoting Wheeler v. Hurdman , 825 F.2d 257, 259 (10th Cir. 1987)).
Whether the discretionary-function exception applies is such a question. See id. ;
8
(...continued)
sovereign immunity.” Id. at 1540.
9
The district court thus did not consider two affidavits which the government
filed. See Franklin III, 970 F. Supp. at 861 n.4. It did, however, consider the
RTC manuals and directives which plaintiffs appended to and incorporated by
reference in their complaint. See id. at 865–66.
-9-
Tippett v. United States , 108 F.3d 1194, 1196 (10th Cir. 1997). This court reviews
de novo a Rule 12(b)(6) dismissal. See Tippett , 108 F.3d at 1196–97.
2. Summary of Applicable Law
To avoid dismissal of an FTCA claim under the discretionary-function
exception, a plaintiff must allege facts that place its claim facially outside the
exception. See Kiehn v. United States , 984 F.2d 1100, 1105 n.7 (10th Cir. 1993).
The district court held that plaintiffs’ claims fell within the exception, which this
court recently explained as follows:
Under the FTCA, the United States waives its sovereign immunity
with respect to certain injuries caused by government employees
acting within the scope of their employment. 28 U.S.C. § 1346(b).
The FTCA contains an exception to this broad waiver of immunity,
however, for claims “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.” Id. § 2680(a). . . . “The
discretionary function 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). If the discretionary function exception applies to the
challenged governmental conduct, the United States retains its
sovereign immunity, and the district court lacks subject matter
jurisdiction to hear the suit. See Johnson v. United States Dep’t of
Interior , 949 F.2d 332, 335 (10th Cir. 1991).
Tippett , 108 F.3d at 1196–97 (second omission in original).
In dozens of cases in the last decade, this court has determined whether
government conduct was within the exception by using a two-branch analysis
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announced in Berkovitz ex rel. Berkovitz v. United States , 486 U.S. 531, 536–37
(1988). This court has summarized the analysis as follows:
First, we determine whether the governmental conduct at issue “is a
matter of choice for the acting employee.” [ Berkovitz , 486 U.S.] at
536. “[C]onduct cannot be discretionary unless it involves an element
of judgment or choice. Thus, the discretionary function exception
will not apply when a federal statute, regulation, or policy specifically
prescribes a course of action for an employee to follow.” Id. (citation
omitted). In such a situation, “the employee has no rightful option
but to adhere to the directive.” Id.If the conduct at issue involves an element of judgment or
choice, Berkovitz requires us to “determine whether that judgment is
of the kind that the discretionary function exception was designed to
shield.” Id. Congress preserved governmental immunity for
discretionary functions to “prevent judicial ‘second-guessing’ of
legislative and administrative decisions grounded in social, economic,
and political policy through the medium of an action in tort.” Id. at
536-37. Therefore, the exception “protects only governmental actions
and decisions based on considerations of public policy.” Id. at 537.
Bell , 127 F.3d at 1228–29. This court has also noted the Supreme Court’s
modification of Berkovitz ’s second branch: “Only decisions that are ‘susceptible to
policy analysis’ are protected by the . . . exception.” Daigle , 972 F.2d at 1538(quoting Gaubert v. United States , 499 U.S. 315, 325 (1991)); see infra at 22–23
(discussing distinction between decisions “based on” and “susceptible to” policy
analysis).
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3. Plaintiffs’ FTCA Claims
Plaintiffs’ general grievance is that the RTC violated the provision in the
OTS order that the appointment was “not for the purpose of liquidation.”
Notwithstanding that dictate, plaintiffs claim, the RTC proceeded to liquidate
FSA. To add specific content to this most general claim, plaintiffs contend that
the RTC breached twenty specific, mandatory requirements detailed in several
agency manuals and directives which guided RTC employees in managing
institutions the RTC was appointed to conserve.
a. Plaintiffs’ claims are not based upon the breach of any specific,
mandatory requirements contained in RTC manuals and directives.
The gravamen of plaintiffs’ complaint is that the RTC engaged in unwise
asset sales without considering all relevant factors. Plaintiffs contend the RTC
thereby impaired FSA’s franchise value and failed to maintain the value, or
maximize the sale price, of its assets. Plaintiffs ultimately contend that these
failures show that the RTC’s intent was never to conserve FSA, but was from the
start to liquidate it. In other words, the RTC’s decisions whether, when, and how
to sell or manage various assets are consistent with an intent to liquidate, and
inconsistent with an intent to conserve.
Day-to-day decisions in operating a financial institution involve discretion.
Unless a regulation specifically mandates a particular action, such decisions satisfy
the first branch of Berkovitz . See Gaubert , 499 U.S. at 325–31 (1991) (applying
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Berkovitz to management of savings-and-loan). “Day-to-day management of
banking affairs, like the management of other businesses, regularly requires
judgment as to which of a range of permissible courses is the wisest.” Id. at 325.
The Court found it “plain” that the actions at issue in Gaubert “involved the
exercise of choice and judgment.” Id. at 331. 10
To distinguish Gaubert , plaintiffs must identify regulations governing the
RTC’s day-to-day management of a savings association that are sufficiently
specific and mandatory to eliminate the discretion that such management
“plain[ly]” entails. After listing their twenty “specific and mandatory” provisions,
plaintiffs challenge the particular sets of transactions discussed supra at 5. They
focus on five requirements that the RTC allegedly violated in those transactions.
i. Most of the requirements on which plaintiffs focus are not
specific and mandatory.
Four of the five requirements are to maintain asset values, avoid sales that
reduce franchise value, maximize value, and schedule sales based on various
concerns:
10
The Court rejected the argument “that the challenged actions fall outside the
discretionary function exception because they involved the mere application of
technical skills and business expertise.” Gaubert, 499 U.S. at 331. That was
“just another way of saying that the considerations involv[ed in] the day-to-day
management of a business concern such as [a savings association] are so precisely
formulated that decisions at the operational level never involve the exercise of
discretion within the meaning of § 2680(a), a notion that we . . . reject[].” Id.
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C The RTC’s Asset Management and Disposition Manual has an asset-
marketing section, whose “purpose . . . is to establish policy guidelines
for the packaging and sale of loans and other assets.” It declares a policy
of “tak[ing] the necessary steps to ensure that asset integrity and value
are maintained in order to maximize sales opportunities.”
C The above section also notes that “[a]sset sales should . . . occur quickly
after [a financial] institution is placed into conservatorship if the sale
does not negatively impact the franchise value of the institution.”
C The “Background” paragraph of a directive on selling and managing
securities says that the “RTC is charged with, among other things, the
maximization of value in the timely and efficient disposition of
securities.”
C The same directive also lists responsibilities of the RTC Capital Markets
Branch. It directs the Branch to “[m]anage and schedule timing of
securities sales based on needs of institutions, market conditions, type of
security, and ease of sale.”
None of the four constitutes a “specific and mandatory requirement” as this court’s
precedents define that term. Instead, they all state general goals, or sets of
objectives to balance, in precatory rather than mandatory language.
In Tippett this court held that a Park Service policy that “[t]he saving of
human life will take precedence over all other management actions” was “too
general to remove the discretion from [a Park Ranger’s] conduct” in a situation
that threatened human life. See 108 F.3d at 1197. In Daigle this court addressed a
statute defining environmental-remediation actions “necessary to prevent,
minimize, or mitigate damage to the public health or welfare.” The statute
specified that the actions should “attain a degree of cleanup . . . [which,] at a
minimum . . . [en]sures protection of human health and the environment.” See
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Daigle , 972 F.2d at 1540 (analyzing 42 U.S.C. §§ 9601(23) & 9621(d)(1)). It thus
specified minimum attainments without specifying a course of action to attain
them. This court held the statute did not contain “specific and mandatory
directives.” See id.The four passages above are no more specific or mandatory than those in
Tippett and Daigle . The first, which refers to RTC “policy,” leaves it to
employees to decide which “steps” are “necessary.” The second mentions asset
sales that “negatively impact the franchise value of the institution” as an
unelaborated caveat to a provision encouraging sales. It does not mandate any
specific process or formula for determining which sales will have such an impact.
The third describes “maximization of value” as one RTC duty “among other
things.” It neither elaborates that general command nor specifies how to perform
the discretionary task of balancing timeliness, efficiency, and return. The final
passage lists four broad considerations to balance, in an unspecified calculus,
without specifying a course of action for the complex task of managing asset sales.
ii. Plaintiffs failed to allege a damage claim for breach of a
specific, mandatory duty to prepare case memoranda.
The lone potentially troubling requirement among the five on which
plaintiffs have focused is found in the RTC’s Asset Management and Disposition
Manual. It directs employees preparing case memoranda, which are “formal
written document[s] used to request authorization to take . . . action on behalf of
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the RTC,” to compare the proposed action to available alternatives. It specifies
that “[a]ll the alternatives must be weighed comprehensively and objectively to
determine the course of action in the best interest of the RTC.” There is some
question whether that passage would qualify as a “specific and mandatory
directive.” 11
Even if it does, however, plaintiffs’ complaint was deficient because,
as discussed below, it did not identify the mere failure to physically prepare case
memoranda weighing alternatives as the cause of plaintiffs’ injuries.
11
To allow plaintiffs to avoid the discretionary-function bar by alleging that RTC
employees breached a specific duty to report information, even though the
harmful decisions based on the information were themselves discretionary, would
be in tension with precedent. See Johnson v. United States, 949 F.2d 332, 339–40
(10th Cir. 1991) (rejecting attempt to base claim not only on discretionary
decision how to conduct rescue, but on allegedly nondiscretionary tasks of
gathering and communicating data about accident, as latter tasks are “inextricably
tied” to former, leaving “[n]o meaningful way . . . to consider [those tasks] apart
from the total rescue decision”). In Johnson, however, no specific, mandatory
requirement governed the information-gathering or communication. See 949 F.2d
at 340 n.10. Johnson thus does not foreclose an FTCA suit based on negligence
that did violate such a requirement.
Other circuits’ precedent is divided. Compare Fisher Bros. Sales v. United
States, 46 F.3d 279, 286–87 (3rd Cir. 1995) (en banc) (7–6) (barring such claims
absolutely) with Gray v. Bell, 712 F.2d 490, 515–16 (D.C. Cir. 1983) (barring
claim, but foreseeing exceptions to rule) (cited in Johnson, 949 F.2d at 340) and
Payton v. United States, 679 F.2d 475, 482 & n.6 (5th Cir. Unit B 1982) (en banc)
(similar, and similarly cited)). See also In re The Glacier Bay, 71 F.3d 1447,
1451–54 (9th Cir. 1995) (allowing comparable claim); General Dynamics Corp. v.
United States, 139 F.3d 1280, 1283–86 (9th Cir. 1998) (trying to harmonize
Fisher Bros. and Glacier Bay); id. at 1287–88 (O’Scannlain, J., dissenting). See
generally Richard H. Seamon, Causation and the Discretionary Function
Exception to the Federal Tort Claims Act, 30 U.C. Davis L. Rev. 691 (1997).
Because plaintiffs’ claim is not actually based on a duty to report information, as
discussed in text, this court expresses no opinion on the legal viability of such a
claim.
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The government denies that this passage is specific and mandatory. It
argues that the passage simply “provides for alternatives to be ‘weighed . . .’” and
thus “implicitly granted RTC discretion to identify the pertinent options and
determine the weight to attribute to each.” This argument has force insofar as it
goes. But the passage does not only concern the discretionary and unquantifiable
mental process of weighing alternatives. It also concerns the arguably
nondiscretionary and definitely quantifiable physical process of drafting
memoranda which weigh alternatives. On review of this Rule 12(b)(6) dismissal,
this court must assume that RTC employees did not draft case memoranda seeking
authorization for the challenged transactions, or that, if they did, such memoranda
failed to identify and weigh alternatives.
While the government has ignored the potential significance of a
requirement not just to weigh alternatives but to record the process in writing,
plaintiffs have ignored it as well. Their complaint did not attribute any harm to
the breach of a specific mandate to draft memoranda, as opposed to a failure to
perform the discretionary function of weighing options. In that part of their
complaint listing specific, mandatory requirements, plaintiffs simply allege that
the RTC “failed to prepare Case Memoranda in the manner specifically mandated”
and “failed to comprehensively and objectively weigh the alternative actions
available to it as specifically mandated.” Their complaint then details three of the
four “liquidation transactions” on which plaintiffs focus on appeal. In describing
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each transaction, the complaint perfunctorily and identically recites that the RTC
acted “without comprehensively and objectively weighing the alternative actions
available to it.” Nowhere else in their 28-page complaint or in their response to
the government’s motion to dismiss did plaintiffs allude in any way to the specific
duty to draft case memoranda.
After the bald assertion that the RTC failed to prepare memoranda weighing
alternatives, the only parts of the complaint which in any way linked that
requirement to any particular events or injuries simply alleged that the RTC did
not “comprehensively and objectively weigh the alternative actions available.”
The complaint does not suggest that plaintiffs’ multi-million-dollar injuries flow
from a failure to perform the arguably nondiscretionary function of drafting
memoranda listing alternatives, and not from neglect of the discretionary function
of “comprehensively and objectively weigh[ing] the alternative actions available.”
Most importantly, plaintiffs have not argued on appeal that the district court
should have read their complaint to allege that a failure to memorialize, as
opposed to a failure to weigh options, caused their injuries.
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iii. Conclusion .
Accordingly, as discussed above and in the district court’s opinion, 12
none
of the twenty provisions that the RTC allegedly violated can enable plaintiffs to
show that their asserted injuries are based upon nondiscretionary conduct. Those
provisions thus afford no basis for reinstating plaintiffs’ dismissed complaint.
b. Plaintiffs cannot avoid the discretionary-function bar by alleging the
RTC intentionally ignored its specific mandate to conserve and not
liquidate FSA.
Plaintiffs’ main argument is that “[t]he RTC as conservator was required to
. . . operate and preserve FSA. Instead, it liquidated FSA and failed to carry out
this nondiscretionary obligation.” Plaintiffs note that the OTS order appointed the
RTC “as conservator for the Association, not for the purpose of liquidation.” They
detail statutory provisions governing the RTC and reflecting a congressional intent
“that only receivers, and not conservators, have the power to liquidate.” Compare
12 U.S.C. § 1821(d)(2)(D) (conservator’s powers) with §§ 1821(c)(13)(B) &
(d)(2)(E) (receiver’s powers). Plaintiffs argue that, because their complaint was
dismissed under Rule 12(b)(6), this court must assume the truth of their factual
allegations, i.e., that the RTC intentionally chose to liquidate rather than conserve
12
This court agrees with the district court, for substantially the reasons stated in
its opinion, that plaintiffs have not shown that any of the remaining fifteen
requirements is both (a) specific and mandatory and (b) a basis for their claims.
See Franklin III, 970 F. Supp. at 865–66. Plaintiffs’ brief on appeal merely
repeats verbatim the complaint’s list of those requirements.
-19-
the Association, in violation of the OTS order. If so, then the RTC consciously
violated the specific duty mandated by that order, stripping itself of the sovereign
immunity preserved by the FTCA’s discretionary-function exception.
The specific transactions that plaintiffs challenge as revealing the RTC’s
intentional violation of the order to conserve and not liquidate are mainly asset
sales. 13 The RTC’s broad authority specifically included power to sell assets of
institutions it was appointed to conserve. See 12 U.S.C. § 1821(d)(2)(G)(i)(II)
(authorizing FDIC/RTC as conservator to “transfer any asset or liability” of
institution). Plaintiffs do not dispute the discretionary character of asset sales,
beyond unsuccessfully invoking the RTC manuals. Two related questions,
however, must be resolved: (1) can plaintiffs avoid the discretionary-function bar
by alleging that RTC employees performed facially authorized acts with an intent
to liquidate; (2) are plaintiffs entitled to discovery to show that the sales were
meant not to conserve the Association, but to effect an intentional, de facto
liquidation?
13
One challenged transaction was not an asset sale. Plaintiffs argue the RTC
failed to timely exercise its statutory authority to repudiate burdensome high-
interest bonds before it issued reports on FSA’s capital which allegedly triggered
the bonds’ defeasance. See 12 U.S.C. § 1821(e)(1) (giving FDIC/RTC discretion,
as conservator, to disaffirm or repudiate any burdensome contract if repudiation
will promote orderly administration of institution’s affairs). The RTC thus had
statutory authority to perform the omitted act and discretion in exercising that
authority. See id. Plaintiffs do not argue that the failure to repudiate breached
any duty other than the general duty to conserve and not liquidate. That failure
thus raises no issues distinct from those raised by the asset sales.
-20-
i. The purpose of the discretionary-function exception.
At the Rule 12(b) stage, this court cannot simply disbelieve plaintiffs’
factual allegations about RTC officials’ intent, as the Government urges.
Nonetheless, the purpose of the discretionary-function exception compels this
court to reject plaintiffs’ argument. The argument premises jurisdiction on an
allegation that RTC employees intentionally undertook the forbidden function of
liquidation rather than the mandated, discretionary function of conservation. The
Supreme Court has repeatedly insisted, as discussed below, that FTCA claims are
not vehicles to second-guess policymaking. That principle requires a federal court
to dismiss an FTCA claim if jurisdiction is so dependent on allegations about
government officials’ intent or decisionmaking process that resolving the claim
would require judicial inquiry into those subjective matters.
The Supreme Court has consistently relied on the purpose of the
discretionary-function exception in defining its scope. See Gaubert , 499 U.S. at322–26; Berkovitz , 486 U.S. at 536–39; Varig , 467 U.S. at 807–10, 813–14;
Dalehite v. United States , 346 U.S. 15, 32–34 (1953). The Court has stressed that
the main congressional purpose in creating the exception was to prevent litigants
and courts from using FTCA actions as vehicles for “second guessing” executive-
branch decisions based on public policy. See Gaubert , 499 U.S. at 323; Berkovitz ,
486 U.S. at 536–37; Varig , 467 U.S. at 814; see also H.R. Rep. No. 77–2245, at 10
-21-
(1942) (discussing exception). This court has repeated that statement of the
exception’s animating purpose in a dozen published opinions since Varig . 14
Under the test first established in Berkovitz , the government must show that
the challenged conduct involves discretion, and that the discretion is of the type
Congress intended to protect. Under Berkovitz , that meant an exercise of
discretion “based on considerations of public policy.” 486 U.S. at 537. In
Gaubert , the Court elaborated on Berkovitz , establishing a “strong presumption”
that an employee who exercised discretion did so in accord with the policy
considerations which led Congress or an agency to confer that discretion. See 499
U.S. at 324. The Court stressed that “[t]he focus of the inquiry is not on the
agent’s subjective intent in exercising the discretion conferred . . ., but on the
nature of the actions taken and on whether they are susceptible to policy analysis.”
Id. at 325; see also Kiehn , 984 F.2d at 1105 (discussing Gaubert and holding that
“lack of record evidence of public policy factors in the . . . decision . . . is
See Aragon v. United States, 146 F.3d 819, 823 (10th Cir. 1998); Bell v. United
14
States, 127 F.3d 1226, 1229 (10th Cir. 1997); Richman v. Straley, 48 F.3d 1139,
1147 (10th Cir. 1995); Black Hills Aviation, Inc. v. United States, 34 F.3d 968,
973 (10th Cir. 1994); Kiehn v. United States, 984 F.2d 1100, 1103 (10th Cir.
1993); Tinkler v. United States, 982 F.2d 1456, 1464 (10th Cir. 1992); Ayala v.
United States, 980 F.2d 1342, 1347 (10th Cir. 1992); Daigle, 972 F.2d at 1538;
Daniels v. United States, 967 F.2d 1463, 1464 (10th Cir. 1992); Johnson, 949
F.2d at 338; Redmon ex rel. Redmon v. United States, 934 F.2d 1151, 1156 (10th
Cir. 1991); Zumwalt v. United States, 928 F.2d 951, 956 (10th Cir. 1991); Allen v.
United States, 816 F.2d 1417, 1424 (10th Cir. 1987). The foregoing opinions all
quote or cite Berkovitz, 486 U.S. at 536–37, Varig, 467 U.S. at 814 or 820, or
both, or refer without attribution to “second guessing.”
-22-
immaterial” because “it is unnecessary for government employees to make an
actual ‘conscious decision’ regarding policy factors” (quoting Johnson , 949 F.2d
at 339)); Daigle , 972 F.2d at 1542 (applying presumption that exercise of
discretion was based in policy despite allegation that officials “‘rushed into
[action] without proper planning’”).
The Court’s modification of the second branch of Berkovitz to ask whether
an exercise of discretion was “susceptible to policy analysis” has lightened the
Government’s burden. The change has also served to emphasize that courts should
not inquire into the actual state of mind or decisionmaking process of federal
officials charged with performing discretionary functions. See, e.g., Bruce A.
Peterson & Mark E. Van Der Weide, Susceptible to Faulty Analysis: United States
v. Gaubert and the Resurrection of Federal Sovereign Immunity , 72 Notre Dame L.
Rev. 447, 464–69, 473 (1997) (counting pre- and post- Gaubert case outcomes to
show that eliminating inquiry into actual decisionmaking has made it much easier
to get FTCA claims dismissed); Richard H. Seamon, Causation and the
Discretionary Function Exception to the Federal Tort Claims Act , 30 U.C. Davis
L. Rev. 691, 708–10 (1997) (explaining how Gaubert has “made it even easier for
the government to satisfy the second part of the [ Berkovitz ] test”).
The en banc Third Circuit recently read Gaubert broadly to restrict all
inquiry into officials’ subjective decisionmaking. See Fisher Bros. Sales v. United
-23-
States , 46 F.3d 279, 285–87 (3rd Cir. 1995) ( en banc ) (7–6). Fisher Brothers
concerned a different type of challenge to a discretionary decision than this case,
but the court’s reasoning in determining the type of inquiry that Gaubert bars is
applicable.
The case involved the FDA Commissioner’s indisputably discretionary
decision to bar Chilean grapes from the United States. See id. at 282. The
decision followed FDA scientists’ allegedly negligent testing of grape samples,
which falsely indicated cyanide. See id. at 282–83. The en banc court concluded
that Gaubert ’s rationale requires dismissal of FTCA claims if a protected exercise
of discretion immediately caused the damages. See id. at 282, 286–87. The
opinion requires dismissal even if plaintiffs disavow any challenge to the exercise
of discretion itself. It thus bars suit for negligent performance of nondiscretionary
data-gathering functions that preceded a discretionary decision, so long as the
decision itself immediately caused the harm. See id. at 286–87. See generally
Seamon, supra , at 722–52 (analyzing case).
Despite accepting plaintiffs’ version of the facts and conceding that their
claims were in a literal sense “based upon” the negligent testing rather than the
Commissioner’s decision, the court nonetheless rejected their theory of proximate
cause as “inconsistent with the purpose of the discretionary function exception.”
-24-
Id. at 286. The court relied on Gaubert to define the range of inquiry which that
purpose forecloses:
[W]here the injury . . . is caused by a regulatory policy decision, . . .
there is no difference in the quality or quantity of the interference
occasioned by judicial second guessing, whether the plaintiff purports
to be attacking the data base on which the policy is founded or . . .
challeng[es] the policy itself.
If plaintiffs [could] . . . challeng[e] the manner in which the
underlying data was collected, federal courts, of necessity, would be
required to examine in detail the decisionmaking process of the
policymaker to determine what role the challenged data played in the
policymaking . . . . Without such an examination and all of the
discovery that would necessarily precede it, a plaintiff . . . would be
unable to prove a causal link between the alleged negligence and the
alleged injury. Yet this is precisely the kind of inquiry that the
Supreme Court sought to foreclose when it ruled out any inquiry into
an official’s “subjective intent in exercising the discretion conferred
by statute or regulation.”
Id. (quoting Gaubert , 499 U.S. at 325). 15
The court held that policy compelled it to read Gaubert as an affirmative bar
to any inquiry into officials’ subjective decisionmaking: “[t]he social cost of
permitting the inquiries required by the plaintiffs’ theory are prohibitive.” Id. The
As a commentator has noted, there is in fact some difference in the “‘quality’”
15
of interference occasioned by judicial second-guessing if plaintiffs attack not the
discretionary decision itself, but data-gathering that preceded it. See Seamon,
supra, at 735–36 (quoting Fisher Bros., 46 F.3d at 286). In the latter case, a
court need not second-guess the decision’s wisdom; it need only examine the
decisionmaking process to determine whether the negligently produced data
affected it. See id.-25-
majority identified three types of social cost: (1) large tort judgments against the
government; (2) demands on the time and attention of an agency’s “most valuable
human resources” when plaintiffs conduct discovery into the bases for officials’
decisions; and (3) the cost, as Seamon puts it, “of having an official’s exercise of
discretion skewed by her desire to avoid the first two kinds of costs.” Id. at
286–87; Seamon, supra , at 737. Those costs result whether a court examines the
wisdom of the discretionary decision, or merely determines if negligent data-
gathering affected it. See Seamon, supra , at 738–47; Fisher Bros. , 46 F.3d at286–87.
Unlike a direct challenge to the exercise of a discretionary function, which
the FTCA plainly bars, plaintiffs’ theory would not require analysis of whether the
RTC was negligent or abused its discretion while trying to perform the function of
conservation. And unlike a Fisher Brothers –type claim, it would not require
analysis of whether any particular data had affected the exercise of discretion.
Plaintiffs’ theory would instead require judicial inquiry into whether the RTC had
in fact tried to perform the discretionary function of conservation, or had instead
intentionally chosen to perform, sub rosa , the function of liquidation. While
differing from a direct or a Fisher Brothers –type challenge, plaintiffs’ theory
would thus still require a court to permit discovery and make factual findings
regarding RTC employees’ state of mind and intent in running the Association.
This the discretionary-function exception does not allow.
-26-
ii. Analogous doctrines limiting inquiry into officials’
decisionmaking.
Other doctrines applicable to official conduct support a reading of Gaubert
as an affirmative bar to inquiry into officials’ subjective intent and
decisionmaking. One such doctrine is qualified immunity. See, e.g., Harlow v.
Fitzgerald , 457 U.S. 800, 813–19 (1982) (discussing official immunity from suits
seeking damages for constitutional torts).
In Harlow , the Supreme Court revised the standard for motions to dismiss
based on the doctrine of qualified immunity. See id. at 814–18. The Court noted
it had crafted the doctrine as a compromise between the need to redress
constitutional harms and the need to minimize disruption of officials’ duties. See
id. at 813–14. In so doing, it had assumed that qualified immunity “would permit
‘[i]nsubstantial lawsuits [to] be quickly terminated.’” Id. at 814 (quoting Butz v.
Economou , 438 U.S. 478, 507–08 (1978)). This would mitigate the costs to
society of frequent, unfounded claims against officials. Those costs include not
only direct expenses of litigation, but “diversion of official energy from pressing
public issues, . . . deterrence of able citizens from acceptance of public office . . .
[and] danger that fear of being sued will ‘dampen the ardor of all but the most
resolute, or the most irresponsible [public officials], in the unflinching discharge
of their duties.’” Id. (quoting Gregoire v. Biddle , 177 F.2d 579, 581 (2d Cir.
-27-
1949) (L. Hand, J.)). The direct, diversionary, and dampening costs are the same
as those noted by the Fisher Brothers court in FTCA suits. See 46 F.3d at 286–87.
Before Harlow , qualified immunity depended on both the objective
reasonableness and subjective good faith of official conduct. See Harlow , 457
U.S. at 815 (discussing Wood v. Strickland , 420 U.S. 308, 322 (1975)). Good
faith, a factual issue, proved unamenable to summary judgment. See id. at 816 &
n.27. The Harlow Court thus concluded that “[t]he subjective element . . . has
proved incompatible with our admonition in Butz that insubstantial claims should
not proceed to trial.” Id. at 815–16. The Court further explained that “substantial
costs,” beyond simply prolonging insubstantial claims, “attend the litigation of the
subjective good faith of government officials.” Id. at 816. Such litigation had
proved peculiarly and broadly disruptive:
There are special costs to “subjective” inquiries of this kind.
Immunity generally is available only to officials performing
discretionary functions. [16] In contrast with the thought processes
accompanying “ministerial” tasks, the judgments surrounding
discretionary action almost inevitably are influenced by the
decisionmaker's experiences, values, and emotions. These variables
explain in part why questions of subjective intent so rarely can be
decided by summary judgment. Yet they also frame a background in
which there often is no clear end to the relevant evidence. Judicial
inquiry into subjective motivation therefore may entail broad-ranging
The Court here used the term in its common-law sense, which distinguishes
16
“discretionary” from “ministerial” acts, and not in its distinct but related FTCA
sense.
-28-
discovery and the deposing of numerous persons, including an
official's professional colleagues. Inquiries of this kind can be
peculiarly disruptive of effective government.
Id. at 816–17 (footnotes omitted). To limit such disruption, the Court adopted a
purely objective test for qualified immunity, holding that “bare allegations of
malice should not suffice to subject government officials either to the costs of trial
or to the burdens of broad-reaching discovery.” Id. at 817–18.
The Court has since emphasized that qualified immunity entails a right to
have suits dismissed at “the earliest possible stage of the litigation,” sparing
officials not only from liability but also from discovery and trial. See Anderson v.
Creighton , 483 U.S. 635, 646 n.6 (1987) (citing Mitchell v. Forsyth , 472 U.S. 511,
526 (1985) (making denial of qualified immunity immediately appealable, lest
right to avoid discovery and trial be lost)). 17
The Court recently held that the right
to be free from discovery is sufficiently important to entitle a defendant to
immediately appeal the denial of a Rule 12(b)(6) motion without sacrificing the
right to immediately appeal a later denial of a summary-judgment motion. See
Behrens v. Pelletier , 516 U.S. 299, 308 (1996) (rejecting one-appeal rule in part
because “ Harlow and Mitchell make clear that [qualified immunity] is meant to
17
The Court has limited Mitchell, allowing immediate appeal only of denials of
immunity turning on questions of law, not sufficiency of evidence. See Johnson
v. Jones, 515 U.S. 304, 313 (1995), lim’d in turn by Behrens v. Pelletier, 516 U.S.
299, 312–13 (1996) (holding that genuine factual dispute does not preclude appeal
of discrete ruling on pure legal issue).
-29-
give government officials a right, not merely to avoid ‘standing trial,’ but also to
avoid the burdens of ‘such pretrial matters as discovery . . ., as “[i]nquiries of this
kind can be peculiarly disruptive of effective government.”’” (quoting Mitchell ,
472 U.S. at 526 (quoting Harlow , 457 U.S. at 817))). 18
18
As illustrated by the opinion establishing that municipalities do not share their
employees’ qualified immunity from § 1983 liability, the analogy between
discretionary-function immunity, which limits governmental liability, and
qualified immunity, which limits officials’ personal liability, is imperfect. See
Owen v. City of Independence, 445 U.S. 622, 650–58 (1980). The Owen Court
declined to rely on qualified-immunity rationales to create a governmental
immunity. See id. at 653–56. It opined that governmental liability is less likely
than personal liability to “paralyz[e] the governing official’s decisiveness and
distort[] his judgment on matters of public policy.” Id. at 655–56.
Owen’s rejection of a qualified-immunity analogy in the § 1983 context is
nonetheless irrelevant in construing the discretionary-function exception for
several reasons. The Owen majority’s tentative empirical speculation that
governmental liability may not affect individual officials was dictum on which the
Court did not rely, perhaps because the four dissenting Justices soundly and
forcefully criticized the majority’s passing comment to that effect. Compare id.
at 656 (deeming “questionable” but not rejecting link between governmental
liability and official timidity); with id. at 668–69 (Powell, J., dissenting). Owen
ultimately relied not on an empirical rationale but a normative one: fear of
governmental liability under § 1983 should lead officials to alter their
decisionmaking to avoid infringing constitutional rights. See id. at 656. This
holding is irrelevant in construing the FTCA, which does not protect
constitutional rights that trump more mundane policy concerns. Cf. id. at 649–50
(rejecting analogy to municipal discretionary-function immunity as reason to
create qualified municipal immunity under § 1983 because, in § 1983 action,
court “does not seek to second-guess the ‘reasonableness’ of the city’s decision”
but only to determine if it violated federal Constitution or laws). The rule that
courts must construe § 1983 broadly to serve its remedial purpose, on which
Owen relied, has no parallel under the FTCA. Compare id. at 650 with Smith v.
United States, 507 U.S. 197, 203 (1993) (disavowing “varying [past] statements
as to how [the FTCA] should be construed” and adopting rule that courts “‘should
not take it upon ourselves to extend the waiver beyond that which Congress
intended . . . [or] narrow the waiver that Congress intended.’”) (quoting United
(continued...)
-30-
A ban on FTCA actions which require inquiry into officials’ subjective
decisionmaking also finds support by analogy to a “central tenet of administrative
law.” See Seamon, supra , at 743–44. The tenet is that courts should not “‘probe
the mental processes’” of administrative officials in APA or comparable review.
See United States v. Morgan , 313 U.S. 409, 422 (1941) (quoting Morgan v. United
States , 304 U.S. 1, 18 (1938)). In Morgan , Justice Frankfurter disapproved a
court’s decision to allow a party to interrogate a Cabinet Secretary “regarding the
process by which he reached the conclusions of [a challenged] order, including the
manner and extent of his study of the record and his consultation with
subordinates.” Id. The Court said that “the Secretary should never have been
subjected to this examination.” Id. ; see also, e.g. , Franklin Savings Ass’n v. Ryan ,
922 F.2d 209, 211–12 (4th Cir. 1991) (discussing breadth of Morgan doctrine and
applying it to bar examination of former OTS Director regarding his decision to
appoint conservator for FSA). Like Harlow ’s purely objective test for qualified
immunity, the Morgan doctrine “allow[s] officials to perform their duties without
18
(...continued)
States v. Kubrick, 444 U.S. 111, 117–18 (1979)). This court had at times said
before Smith that “[e]xceptions to the FTCA are to be narrowly construed.”
Johnson, 949 F.2d at 336; see also Miller v. United States, 710 F.2d 656, 662
(10th Cir. 1983); First Nat’l Bank in Albuquerque v. United States, 552 F.2d 370,
376 (10th Cir. 1977); Smith v. United States, 546 F.2d 872, 877 (10th Cir. 1976).
Such comments are no longer valid. Finally, Owen predated Harlow’s conclusion,
made after further experience with qualified-immunity litigation, that an immunity
doctrine must exclude “peculiarly disruptive” subjective inquiry if it is to protect
governmental efficiency. See 457 U.S. at 817.
-31-
fear of harassment from lawsuits.” Stephen G. Breyer & Richard B. Stewart,
Administrative Law and Regulatory Policy: Problems, Text, and Cases 868 (3d ed.
1992).
Unlike qualified immunity under Harlow , however, the Morgan rule has an
exception for cases involving “a strong showing of bad faith or improper
behavior.” See Community for Creative Non-Violence v. Lujan , 908 F.2d 992, 997
(D.C. Cir. 1990) (citing Citizens to Preserve Overton Park, Inc. v. Volpe , 401 U.S.
402, 420 (1971)). 19
At first blush, that exception may suggest that analogizing to
Morgan in the present case would support reversing the dismissal. A comparison,
however, of the purposes of and relief available under the APA and the FTCA
demonstrates that it is proper to allow judicial inquiry into subjective
decisionmaking in a small number of APA cases, but to preclude it in all FTCA
cases.
The APA’s purpose is to authorize judicial scrutiny of executive-branch
decisionmaking, with two narrow exceptions; it created a “basic presumption of
19
The Morgan rule has a second, very narrow exception for cases in which a lack
of contemporary findings or other administrative record makes effective judicial
review impossible without examining the decisionmaker. See Community for
Creative Non-Violence v. Lujan, 908 F.2d 992, 997–98 (D.C. Cir. 1990) (citing
Overton Park, 401 U.S. at 420); see also Pension Benefit Guar. Corp. v. LTV
Corp., 496 U.S. 633, 654 (1990) (“Subsequent cases have made clear that
remanding to the agency [to explain its reasoning more fully] in fact is the
preferred course”).
-32-
judicial review.” See Abbott Labs. v. Gardner , 387 U.S. 136, 140 (1967)
(construing 5 U.S.C. §§ 701–702). The FTCA’s purpose, by contrast, is to remove
sovereign immunity as a bar to compensating people hurt by federal employees’
garden-variety common-law torts. See Kosak v. United States , 465 U.S. 848, 855
(1984); Dalehite , 346 U.S. at 28; Seamon, supra , at 739 n.195. Its purpose is not
to facilitate judicial second-guessing of executive decisionmaking. Such second-
guessing is, instead, the point of the APA, which Congress enacted in the same
year as the FTCA. 20
Given the statutes’ diametrically opposed yet complementary
purposes, it is sensible to allow judicial inquiry into bad faith and subjective
decisionmaking in a few exceptional cases under the APA, but to ban all FTCA
suits that necessitate that peculiarly disruptive inquiry.
Treating bad-faith claims differently under the APA and FTCA also accords
with the divergent remedies under the two statutes. The APA presumptively
authorizes judicial review of almost all administrative acts. See Abbott Labs , 387
U.S. at 140; see also Block v. Community Nutrition Inst. , 467 U.S. 340, 349
(1984); Overton Park , 401 U.S. at 410. As a concomitant of that broad
applicability, Congress has limited the relief available under the APA by waiving
sovereign immunity only as to suits “seeking relief other than money damages.” 5
20
See Act of June 11, 1946, ch. 324, 60 Stat. 237 (APA) (codified as amended at 5
U.S.C. §§ 701–706); Legislative Reorganization Act of 1946, Pub. L. No. 79–601,
tit. IV, 60 Stat. 812, 842 (1946) (FTCA) (codified as amended at 28 U.S.C.
§§ 1346(b), 2671–2680).
-33-
U.S.C. § 702. The raison d’etre of the FTCA, by contrast, is to waive sovereign
immunity to suits seeking relief via money damages.
The possibility of damage awards creates a strong incentive to bring FTCA
claims. See Ronald A. Cass, The Discretionary Function Exception to the Federal
Tort Claims Act , in 2 Administrative Conf. of the United States, Recommendations
and Reports 1503, 1519–27 (1987). This incentive, absent in APA suits, suggests
the need for a stricter limit on FTCA litigants’ ability to require federal courts to
scrutinize officials’ subjective decisionmaking. The discretionary-function
exception provides that limit. The exception must bar all suits dependent on
allegations of subjective bad faith if it is to serve its purposes: to protect the
separation of powers and executive-branch efficiency from the disruptive
discovery and judicial scrutiny that would result if large potential damage awards
produced numerous suits, and those suits could not be summarily dismissed
because of the factual nature of intent and good faith. Because the APA averts the
threat of numerous suits by excluding damages, the narrow bad-faith exception to
the rule against examining subjective decisionmaking poses no such risk. 21
Both Harlow and Morgan thus support the view that Gaubert should bar any
FTCA claim for which jurisdiction necessarily depends on an employee’s bad faith
21
Because review of bad faith may be available under the APA, moreover, a
refusal to permit such inquiry in FTCA suits will not leave all plaintiffs without
remedy. See Seamon, supra, at 741 & n.204.
-34-
or state of mind in performing facially authorized acts. In this case, the RTC’s
statutory powers as conservator authorized all the acts which plaintiffs challenge
as a liquidation. Those acts, if done in good faith, entailed an exercise of
discretion. Without probing RTC officials’ intent and good faith, there is no way
ultimately to determine whether their acts constituted a covert, intentional
liquidation or an effort, perhaps negligent, at conservation.
Faced with the related question whether an official’s acts, if allegedly done
in bad faith, can still be within his or her scope of duty for purposes of official
immunity, the Supreme Court acknowledged the argument that “‘official powers,
since they exist only for the public good, never cover occasions where the public
good is not their aim, and hence . . . to exercise a power dishonestly is necessarily
to overstep its bounds.’” Barr v. Matteo , 360 U.S. 564, 572 (1959) (quoting
Gregoire , 177 F.2d at 581). After a “moment’s reflection,” the Court rejected that
theory in light of the immunity doctrine’s purpose:
“[T]hat cannot be the meaning of the [scope-of-duty] limitation
without defeating the whole [official-immunity] doctrine. What is
meant by saying that the officer must be acting within his power [to
enjoy official immunity for his acts] cannot be more than that the
occasion must be such as would have justified the act, if he had been
using his power for any of the purposes on whose account it was
vested in him.”
Id. (quoting Gregoire , 177 F.2d at 581). The same is true of the FTCA’s
requirement that an official be engaged in performing a discretionary function in
-35-
order to preserve sovereign immunity. What is meant by saying that the officer
must be performing a discretionary function cannot be more than that the
discretionary function would have justified the act, if the official had been
exercising discretion in good faith for any of the purposes on whose account that
discretion was vested in the official. Immunity doctrines can not function well if
mere allegations of bad faith will penetrate them and require trial, or at least
sufficient discovery to allow summary judgment, rather than dismissal under Rule
12(b)(6). Cf. Behrens , 516 U.S. at 508 (noting officials’ right to rely on Rule
12(b)(6) to avoid pre–summary judgment discovery, not just trial, in construing
qualified-immunity doctrine).
iii. Conclusion.
The inquiry necessary to decide whether this case involved “negligent,
good-faith conservation” or “intentional, bad-faith liquidation” would entail the
type of judicial second-guessing which led the Gaubert Court to hold that courts
need not consider officials’ actual decisionmaking in FTCA cases. See 499 U.S. at
325. Such an inquiry would impose the same social costs which the Court
presumably considered in Gaubert , which the Third Circuit discussed in extending
Gaubert to bar claims that require even noncritical examination of discretionary
decisionmaking, and which the Supreme Court discussed in adopting a purely
-36-
objective standard for qualified immunity. See Fisher Bros. , 46 F.3d at 286–87;
Harlow , 457 U.S. at 814–17.
A rule requiring dismissal of FTCA claims which necessarily turn on
employees’ intent or subjective bad faith has one potentially troubling effect. It
amounts to an irrebuttable presumption that an employee ordered or required by
law to perform a discretionary function, and whose acts are facially consistent with
that function, did try in good faith to perform it. That irrebutable presumption will
inevitably compel dismissal in cases, hopefully rare, in which an official
intentionally ignored or subverted a duty, but not in a way discernible from his or
her objective acts or omissions. To note this unavoidable cost is to invoke
Learned Hand’s “classic statement of the rationale for official immunity”:
“[A]n official, who is in fact guilty of using his powers to vent his
spleen upon others, or for any other personal motive not connected
with the public good, should not escape liability for the injuries he
may so cause; and, if it were possible in practice to confine such
complaints to the guilty, it would be monstrous to deny recovery. The
justification for [denying recovery] is that it is impossible to know
whether the claim is well founded until the case has been tried, and
that to submit all officials, the innocent as well as the guilty, to the
burden of a trial and to the inevitable danger of its outcome, would
dampen the ardor of all but the most resolute, or the most
irresponsible, in the unflinching discharge of their duties. Again and
again the public interest calls for action which may turn out to be
founded on a mistake, in the face of which an official may later find
himself hard put . . . to satisfy a jury of his good faith. There must
indeed be means of punishing public officers who have been truant to
their duties; but that is quite another matter from exposing such as
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have been honestly mistaken to suit by anyone who has suffered from
their errors. As is so often the case, the answer must be found in a
balance between the evils inevitable in either alternative. In this
instance it has been thought in the end better to leave unredressed the
wrongs done by dishonest officers than to subject those who try to do
their duty to the constant dread of retaliation.”
Richard H. Fallon, Jr., et al., Hart & Wechsler’s The Federal Courts and the
Federal System , 1165 (4th ed. 1996) (quoting Gregoire , 177 F.2d at 581).
c. The RTC did not engage in nongovernmental activity in commerce
barring a conclusion that it exercised the sort of discretion the
exception protects.
Plaintiffs’ final FTCA argument addresses the second branch of Berkovitz
by invoking the Supreme Court’s recent decision in United States v. Winstar
Corp. , 518 U.S. 839 (1996). Under Winstar , plaintiffs argue, the Government
ceases to exercise discretion of the sort protected by the FTCA, and thus forfeits
its sovereign immunity, when it enters commerce to perform such activities as
managing a savings-and-loan association. See id. at 895. Winstar , however,
concerns the United States’ contractual obligations, not its tort liability. It is thus
inapplicable. Winstar concerned thrifts’ attempts to enforce regulatory contracts
with the United States. Id. at 843–44. The Court observed that “‘[w]hen the
United States enters into contract relations, its rights and duties therein are
governed generally by the law applicable to contracts between private
individuals.’” Id. at 895 (quoting Lynch v. United States , 292 U.S. 571, 579
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(1934)). In a footnote the Court also quoted its ancient observation that “when the
United States ‘comes down from its position of sovereignty, and enters the domain
of commerce, it submits itself to the same laws that govern individuals there.’”
Id. at 895 n.39 (quoting Cooke v. United States , 91 U.S. 389, 398 (1875)). That
footnote, however, did not change, direct, or compress the scope of the
discretionary-function exception for tort claims. Nor did it implicitly overrule the
central premise of Gaubert : oversight of financial institutions generally entails
discretion of the sort protected by the exception. See 499 U.S. at 324–25.
C. The FTCA Bars Plaintiffs’ Tort Claims Asserted Directly Against the
FDIC.
The FDIC’s organic statute empowers the FDIC “to sue and be sued in its
corporate capacity.” 12 U.S.C. § 1441a(b)(9)(E). The district court rejected
plaintiffs’ theory that this section entitled them to bring tort claims directly against
the FDIC, regardless of the limits in the FTCA. See Franklin III , 970 F. Supp. at
868. The court aptly quoted the Supreme Court’s recent holding that,
“In order to place torts of ‘suable’ agencies . . . upon precisely the
same footing as torts of ‘nonsuable’ agencies, Congress, through the
FTCA, limited the scope of sue-and-be-sued waivers such as that
contained in [the FDIC’s] organic statute.” Specifically, Congress
stated [in the FTCA]:
The authority of any federal agency to sue and be sued in
its own name shall not be construed to authorize suits
against such federal agency on claims which are
cognizable under [the FTCA, 28 U.S.C. § 1346(b)], and
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the remedies provided by [the FTCA] in such cases shall
be exclusive.
28 U.S.C. § 2679(a). “Thus, if a suit is ‘cognizable’ under § 1346(b)
of the FTCA, the FTCA remedy is ‘exclusive’ and the federal agency
cannot be sued ‘in its own name,’ despite the existence of a
sue-and-be-sued clause.”
Id. (quoting FDIC v. Meyer , 510 U.S. 471, 476 (1994) (first alteration in Meyer )
(citation omitted from Meyer )). The court further correctly explained that
plaintiffs’ suit is “cognizable” under § 1346(b): it is a straightforward State-law
tort suit. See id. (citing In re Cedar Vale State Bank , 894 P.2d 816 (Kan. 1995)
(recognizing claim against bank receiver)). The court also rejected the argument,
which plaintiffs repeat on appeal, that “if the tort claim against the United States
fails because of the discretionary function exception, it is not cognizable under
§ 1346(b) and the RTC is subject to the tort claim under its sue-and-be-sued
[clause].” See id. As the district court correctly noted, this argument would make
the discretionary-function exception a meaningless rule of pleading: “Litigants
could avoid the force of the statute merely by suing an agency directly.” Id.
Plaintiffs add no persuasive authority to their theory on appeal. This court affirms
the dismissal of their common-law tort claims against the FDIC for substantially
the reasons stated in the district court’s opinion.
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IV. CONCLUSION
This court AFFIRMS the dismissal of all claims for lack of subject-matter
jurisdiction.
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