Baer v. U.S.

Citation:
Baer v. United States, 2013 U.S. App. LEXIS 13546, no. 12-1319 (3d. Cir. July 1, 2013).
Tag(s):
Ruling:
The Third Circuit AFFIRMED the district court's dismissal of the complaint for lack of subject matter jurisdiction, holding that Appellants were merely challenging discretionary decisions relating to the timing, manner, and scope of SEC investigations but failed to identify any violation of a mandatory policy or guideline by any SEC employee. As such, the alleged misconduct fell within the discretionary function exception to the FTCA.
Procedural context:
Plaintiffs/Appellants were customers of Bernard L. Madoff Investment Securities LLC (“BLMIS”). On March 7, 2011, Appellants brought suit against the United States under the Federal Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671 et seq. (“FTCA”), to recover damages for injuries resulting from the failure of the Securities and Exchange Commission (“SEC”) to uncover and terminate Madoff’s Ponzi scheme in a timely manner. The District Court for the District of New Jersey dismissed the complaint based on lack of subject matter jurisdiction, finding that Appellants’ claims were barred by the discretionary function exception (“DFE”) to the FTCA. On appeal, the Third Circuit Court of Appeals affirmed.
Facts:
Plaintiffs/Appellants alleged that the SEC violated several mandatory internal procedures during the BLMIS investigation by: (1) failing to obtain trading verifications; (2) failing to commence investigations promptly; (3) failing to draft closing reports; and (4) failing to log investigations into the SEC’s examination tracking system. The FTCA waives the federal government’s sovereign immunity with respect to tort claims for money damages. See 28 U.S.C. § 1346(b)(1). The discretionary function exception limits that waiver, eliminating jurisdiction for claims based upon the exercise of a discretionary function on the part of an employee of the government. See 28 U.S.C. § 2680(a). Pursuant to the DFE, the government retains sovereign immunity with respect to any claim 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. Plaintiffs/Appellants bear the burden of demonstrating that their claims fall within the scope of the FTCA’s waiver of government immunity, while the government has the burden of proving the applicability of the discretionary function exception. To determine whether the DFE applies, courts employ a two-part test. First, a court must consider whether the action is a matter of choice for the acting employee. Second, a court must determine whether the judgment exercised is of the kind that the discretionary function exception was designed to shield. If a regulation allows the employee discretion, the very existence of the regulation creates a strong presumption that a discretionary act authorized by the regulation involves consideration of the same policies which led to the promulgation of the regulations. Plaintiffs/Appellants alleged that the SEC was not protected from liability under the DFE because neither part of the two-part test was satisfied. The Third Circuit disagreed, holding that that Plaintiffs/Appellants failed to identify any violation of a mandatory policy or guideline by any SEC employee, because relevant statutory language illustrates that an element of discretion was involved in the acts and omissions complained of.
Judge(s):
HARDIMAN and ALDISERT, Cir. JJ., and STARK, D.J., sitting by designation.

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