O'Connell v. United States of America et al

Filing 28

MEMORANDUM AND ORDER: the motion to dismiss is granted. SO Ordered by Judge Raymond J. Dearie on 8/24/2017. (Ramesar, Thameera)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
X

TIMOTHY O'CONNELL,

Plaintiff,

MEMORANDUM & ORDER

- against -

Docket No. 15 CV 6512(RJD)
(RLM)

UNITED STATES OF AMERICA, MICHAEL
ASARO,SEAN CASEY,PAUL SCHOEMAN,
JAMES MCMAHON,JON E. GREEN,and
UNKNOWN FEDERAL AGENT JOHN DOES 1-10,
Defendants.

DEARIE, District Judge

In a series of prosecutions, referred to as the "squawk box" cases, numerous financial
advisers, including Plaintiff Timothy O'Connell, were charged with insider trading and related
offenses. O'Connell's claims stem from the government's withholding exculpatory material from
him and his co-defendants. He brings claims for malicious prosecution, negligence and gross

negligence against the United States and claims for violation of due process and malicious
prosecution against five Assistant United States Attorneys and ten unknown federal agents.
Defendants move to dismiss the Amended Complaint(hereinafter "Complaint") pursuant to
Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). The motion is granted.
BACKGROUND

The indictment charged O'Connell and his five co-defendants with securities fraud for

purposefully allowing outside day traders to listen to confidential information broadcast over
"squawk boxes"—intercom speakers used in investment banks and stock brokerage houses to
facilitate internal communications between analysts, traders, and brokers. The government's case

depended, in part, on its proving that the information shared over the squawk boxes was in fact
confidential.

The Assistant United States Attorneys prosecuting the case worked closely with the

Securities and Exchange Commission("SEC")to develop the charges against O'Connell and his
co-defendants. Beginning in December 2004,the SEC deposed numerous witnesses, some of
whom testified that the information broadcast over the squawk boxes was not confidential. The

SEC provided the transcripts ofthese depositions to the prosecutors before trial and alerted the
prosecutors that at least one, and potentially several, of the transcripts might contain exculpatory
material. The prosecutors, however, elected not to share the transcripts with O'Connell and his
co-defendants.

O'Connell and his co-defendants were initially tried in 2007. O'Connell was convicted

of witness tampering and making a false statement' and acquitted on thirty-eight counts of
securities fraud and related offenses. The jury could not reach a decision on the related
conspiracy charge.

Defendants retried O'Connell and his co-defendants on the conspiracy count in 2009. The
second trial team apparently chose to rely on the first team's decision not to disclose the SEC
transcripts. O'Connell was convicted after a three-week trial and sentenced to a period of home
confinement.

In May 2009,the SEC initiated administrative proceedings against one of O'Connell's
co-defendants. In connection with those proceedings, the SEC disclosed the deposition

transcripts in December 2009. O'Connell and his co-defendants moved for a new trial in

^ O'Connell appealed his false statement conviction, which the Second Circuit vacated. See
United States v. Mahaffv. 285 F. App'x 797(2d Cir. 2008). The count was later dismissed.

February 2010, arguing that the transcripts included Brady material that was withheld in the
criminal proceedings. The trial court criticized the government's conduct, but concluded that the
jury would not have reached a different result even if the transcripts had been disclosed. See
United States v. Mahaffv. No. 05-CR-613(JG), 2010 WL 2925952(E.D.N.Y. July 21,2010),
revM.693 F.3d 113(2d Cir. 2012).

The Second Circuit reversed, concluding that the government's failure to disclose

portions ofthe transcripts violated Bradv and undermined the court's confidence in the jury's
verdict. S^ United States v. Mahaffv.693 F.3d 113, 119(2d Cir. 2012). Following remand,

O'Connell entered into a deferred prosecution agreement with the government. In December
2013, at the end ofthe agreed-upon six month deferral—^which was successfully completed by
O'Connell—^the government moved to dismiss the indictment.
On November 12, 2014, O'Connell filed a notice of claim against the United States, as

required under the Federal Tort Claims Act("FTCA"). S^ 28 U.S.C. § 2401(b). A year later,
O'Connell commenced this action. The Complaint brings claims for malicious prosecution,
negligence, and gross negligence against the United States pursuant to the FTCA and claims for
violation of due process and malicious prosecution against the prosecuting Assistant United

States Attorneys("AUSA defendants") pursuant to Bivens v. Six Unknown Named Agents. 403
U.S. 388(1971).
DISCUSSION

Defendants move to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(1) and

12(b)(6), citing the absolute immunity ofthe AUSA defendants and the sovereign immunity of

the United States. Defendants also assert that the claims are barred by the statute of limitations
and that O'Connell fails to state a claim.^

A. Claims Against A USA Defendants

The government contends that the claims against the AUSA defendants are barred by the
absolute immunity offederal prosecutors acting in an advocacy role. The Court agrees. Because
the AUSA defendants were acting in their capacities as advocates when they decided not to
disclose the SEC transcripts, they are absolutely immune from civil liability.
"The nature ofa prosecutor's immunity depends on the capacity in which the prosecutor

acts at the time ofthe alleged misconduct. Actions taken as an advocate enjoy absolute

immunity ... while actions taken as an investigator enjoy only qualified immunity." Zahrev v.
Coffev. 221 F.3d 342, 346(2d Cir. 2000)(citations omitted)."This immunity law applies to
Bivens actions as well as actions under section 1983." Id "In applying this 'functional approach'

to claims of absolute immunity, courts focus on 'the nature ofthe function performed, not the

identity ofthe actor who performed it.'" Bernard v. Cntv. of Suffolk. 356 F.3d 495, 503(2d Cir.
2004)(quoting Bucklev v. Fitzsimmons. 509 U.S. 259,269(1993)). Prosecutors are only
"entitled to absolute immunity for that conduct 'intimately associated with the judicial phase of

the criminal process.'" Hill v. Citv of New York,45 F.3d 653,661 (2d Cir. 1995)(quoting
Imbler V. Pachtman.424 U.S. 409,430(1976)). Accordingly, prosecutors are "absolutely

immune from civil liability for initiating a prosecution and presenting the case at trial." Id. They
are "also immune for conduct in preparing for those functions; for example, evaluating and

^ Defendants offer compelling arguments that the due process and negligence claims are time
barred, and that the plaintiff fails to state a malicious prosecution claim, along with several other
arguments in favor of dismissal. However, because the immunity issues are dispositive with
respect to all claims, the Court does not reach defendants' other arguments.

organizing evidence for presentation at trial or to a grand jury, or determining which offenses are
to be charged." Id (citations omitted). Thus, the immunity covers "virtually all acts, regardless
of motivation, associated with [the prosecutor's] function as an advocate." Dory v. Rvan,25 F.3d
81, 83(2d Cir. 1994).

O'Connell asserts that the AUSA defendants' failure to disclose the transcripts and their

decision to prosecute O'Connell anyway was a "deliberate abuse of govemmental power," that
violated O'Connell's due process rights. Compl. H 110. While O'Connell is correct that the
AUSA defendants failed to fulfill their Bradv obligations, these actions, no matter how one

characterizes them,cannot subject the AUSA defendants to civil liability. The AUSA defendants

were acting as advocates when,for whatever reason, they decided not to disclose the potentially
exculpatory material. This occurred during the judicial phase of the criminal process, and
therefore entitles the AUSA defendants to absolute immunity on the due process claim. See Hill.
45 F.3d at 662("As to [defendant's] failure to turn over Bradv material,... this omission

occurred after the prosecutorial phase ofthe case had begun and therefore is protected as a
discretionary advocacy function."); Collins v. Citv of New York. 923 F. Supp. 2d 462,475
(E.D.N.Y. 2013)("'Bradv and Giglio duties are functionally prosecutorial—^they are intimately

related to the judicial phase ofthe criminal process,"'(quoting Fields v. Wharrie. 672 F.3d 505,
513(7th Cir. 2012)).

The AUSA defendants are immune notwithstanding O'Connell's assertion that they

"worked closely" with the SEC "in developing the charges" against O'Connell and the other
defendants. These actions, O'Connell argues, show that the AUSA defendants were at times

acting as investigators and not advocates, and they accordingly have only qualified immunity.
Compl.

22, 118. But the Second Circuit has held that even "investigative acts reasonably

related to decisions whether or not to begin or to carry on a particular criminal prosecution, or to
defend a conviction, are shielded by absolute immunity when done by prosecutors." Giraldo v.

Kessler. 694 F.3d 161,166(2d Cir. 2012). The allegations in the Complaint do not support the

argument that the prosecutors were acting outside of their advocacy role, even during the
investigation. Accordingly, the due process claim is dismissed.

The malicious prosecution claim against the AUSA defendants fares no better. Indeed,
the Second Circuit has unequivocally stated that prosecutors are entitled to absolute immunity

from malicious prosecution claims. See Hill, 45 F.3d at 661 ("With respect to the third [claim],
malicious prosecution, it has long been settled that prosecutors are entitled to immunity from §
1983 liability for initiating a prosecution."(citing Imbler. 424 U.S. at 431)). Accordingly, the
claims against the AUSA defendants are dismissed.
B. Claims Against the United States

Despite the eventual outcome ofthe prosecution, O'Connell nevertheless brings similar
claims against the United States pursuant to the FTCA. These claims are barred by the sovereign
immunity ofthe United States because ofthe so-called "discretionary function" exception to the
FTCA.

The FTCA "'constitutes a limited waiver by the United States of its sovereign immunity

and allows for a tort suit against the United States under specified circumstances.'" Liranzo v.
United States. 690 F.3d 78, 85(2d Cir. 2012)(quoting Hamm v. United States. 483 F.3d 135,

137(2d Cir. 2007)). The discretionary function exception to the FTCA protects the United States
from liability for 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 ofthe
Government, whether or not the discretion involved be abused." 28 U.S.C. § 2680(a)."The

discretionary function exception is 'a form of retained sovereign immunity. As a result, the

[FTCA's] waiver offederal sovereign immunity does not encompass actions based upon the
performance of, or failure to perform, discretionary functions.'" Reichhart v. United States, 408

F. App'x 441,443(2d Cir. 2011)(quoting In re World Trade Ctr. Disaster Site Litig.. 521 F.3d
169, 190(2d Cir. 2008)).'"Because the FTCA is structured as a grant of subject matter

jurisdiction to the federal courts, a finding that the discretionary function exception applies is
tantamount to holding that the court lacks jurisdiction.'" Id (quoting Caban v. United States. 671
F.2d 1230, 1235 n.5(2d Cir. 1982)).

O'Connell bases his malicious prosecution claim against the United States on his

allegation that the AUSA defendants "knew or should have known that they have no basis to

prosecute [him]," Compl.^ 83, but that they "continued to prosecute [O'Connell] in the Criminal
Action out of malice." Id,185. However,since the AUSA defendants were acting in a clearly
discretionary role throughout the investigation and prosecution, the malicious prosecution claim
is barred."Prosecutorial decisions as to whether, when and against whom to initiate prosecution

are quintessential examples of governmental discretion in enforcing the criminal law, and,
accordingly, courts have uniformly found them to be immune under the discretionary function
exception." Grav v. Bell. 712 F.2d 490,513(D.C. Cir. 1983). District courts in this Circuit
routinely dismiss similar malicious prosecution claims against the United States. See, e.g., Petitio
V. Hill. No. 04-CV-4493,2007 WL 1016890, at *14(E.D.N.Y. Mar. 26,2007)("The

'discretionary function exception' to the Government's waiver ofsovereign immunity under the
FTCA further precludes plaintiffs tort claims insofar as they arise from a prosecutor's decision
to indict and prosecute."). The exception also encompasses a prosecutor's decision to prosecute
"even if that decision constitutes an abuse of prosecutorial discretion." Wang v. United

States. No. 01 CIV. 1326, 2001 WL 1297793, at *4(S.D.N.Y. Oct. 25,2001)afM,61 F. App'x

757(2d Cir. 2003). Accordingly, the United States retains its sovereign immunity and the Court
does not have jurisdiction to hear this claim.

The negligence and gross negligence claims against the United States for failure to
disclose Bradv material are barred for the same reason. As the D.C. Circuit observed,"[djeciding

whether to prosecute ... identifying the evidence to submit to the grand jury and determining
whether information is 'exculpatory' and 'material' and therefore must be disclosed pursuant to a

Bradv request are actions that require the prosecutor to exercise his professional judgment. They

are therefore quintessentially discretionary." Moore v. Valder. 65 F.3d 189, 197(D.C. Cir.
1995). Because O'Connell's negligence and gross negligence claims are based on the AUSA
defendants' failure to disclose the Bradv material, these claims are also barred by the

discretionary function exception.^
O'Connell attempts to rescue his FTCA claims by again arguing that the AUSA

defendants participated in the investigatory phase ofthe case, and that the United States therefore
does not have immunity. But the investigative/advocacy distinction is not relevant in the context

the discretionary function exception to the FTCA. Rather,"[wjhere an allegation ofimproper

^ In July 2016,the D.C. Circuit decided Loumiet v. United States. 828 F.3d 935(D.C. Cir. 2016),
which held that "the FTCA's discretionary-function exception does not provide a blanket
immunity against tortious conduct that a plaintiff plausibly alleges also flouts a constitutional
prescription." Id at 943. Loumiet took care to emphasize that it did not overturn Moore or Gray,
but rather addressed the "novel" question of whether the discretionary function exception
shielded the United States from tort liability even in cases where the government allegedly
exceeded a constitutional mandate. Id No such question is presented here. Plaintiff alleges state
tort claims for malicious prosecution, negligence, and gross negligence against the United States
based upon the decisions made by prosecutors. Moore specifically held that initiating a
prosecution and determining whether to disclose exculpatory material under Bradv were
decisions that were "quintessentially discretionary," Moore.65 F.3d at 197, a finding that
Loumiet did not dispute. Accordingly, Loumiet does not alter the Court's determination that the
FTCA bars O'Connell's claims.
8

investigatory conduct is tied to the decision to prosecute and the presentation of evidence to the
grand jury, the discretionary function exception [still] precludes suit against the government." In
re Grand Jury Minutes in U.S. v. Tam.No. 96 CV 2810,1997 WL 21369, at *3(E.D.N.Y. Jan. 9,

1997); see also Valdez v. United States. No.08 CIV 4424(RPP),2009 WL 2365549, at *7
(S.D.N.Y. July 31,2009)("[Djecisions about how to conduct investigations fall squarely within
the discretionary function exception.").

Consequently, the government has not waived its sovereign immunity for any of
O'Connell's FTCA claims and this Court is withoutjurisdiction to hear them.
CONCLUSION

For the foregoing reasons, the motion to dismiss is granted.
SO ORDERED.

Dated: Brooklyn, New York

August ^^2017
s/ RJD
)EARIE

United'StdtC^ District Judge