Molchatsky et al v. United States Of America
Filing
21
RESPONSE in Support re: 5 MOTION to Dismiss for Lack of Jurisdiction. United States of America's Response to Plaintiffs' Surreply. Document filed by United States Of America. (Ehrlich, Jeffrey)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
––––––––––––––––––––––––––––––––––––x
:
PHYLLIS MOLCHATSKY and
:
STEVEN SCHNEIDER, M.D.,
:
:
Plaintiffs,
:
:
v.
:
:
UNITED STATES OF AMERICA,
:
:
Defendant.
:
:
––––––––––––––––––––––––––––––––––––x
09 CIV 8697 (LTS/AJP)
UNITED STATES OF AMERICA’S
RESPONSE TO PLAINTIFFS’ SURREPLY
PREET BHARARA
United States Attorney
Southern District of New York
SARAH S. NORMAND
NEIL M. CORWIN
Assistant United States Attorneys
Southern District of New York
86 Chambers Street, Third Floor
New York, NY 10007
212-637-2709/2707
sarah.normand@usdoj.gov
neil.corwin@usdoj.gov
TONY WEST
Assistant Attorney General
PHYLLIS J. PYLES
Director, Torts Branch
MARY M. LEACH
Assistant Director, Torts Branch
JEFFREY PAUL EHRLICH
Trial Attorney, Torts Branch
Department of Justice
Benjamin Franklin Station
P.O. Box 888
Washington, D.C. 20044
202-353-2574
jeff.ehrlich@usdoj.gov
TABLE OF CONTENTS
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
I.
Discovery would not alter the discretionary function analysis.. . . . . . . . . . . . . . . . . . . . . . 2
II.
Proof that the SEC actually considered policy factors is unnecessary
because the challenged conduct is “susceptible to policy analysis.”. . . . . . . . . . . . . . . . . . 7
III.
Dichter-Mad was carefully and correctly decided. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
IV.
Plaintiffs’ claims would be barred even if the SEC violated mandatory
policies, as the Commission retained the ultimate discretion to stop Madoff
and warn his investors... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INTRODUCTION
Plaintiffs’ surreply ignores the crux of the United States’ motion and reply: that the
applicable statutes and regulations grant the SEC discretion in determining whether and how to
investigate and take action against suspected violators of the securities laws, and thus the
discretionary function exception bars Plaintiffs’ claims, even if the SEC acted negligently.
Rather than address this key point, Plaintiffs persist with arguments that have already been
rebutted in the United States’ reply, and the authorities cited therein, and that have now been
soundly rejected, as well, by the opinion in Dichter-Mad v. United States.1
First, Plaintiffs renew their discovery demand, apparently hoping to find an informal, yet
ostensibly mandatory, policy not contained in the pertinent statutes or regulations, and not
identified by the Inspector General in his comprehensive 457-page report. But the materials
Plaintiffs seek through discovery, assuming they even exist, would not be legally relevant to the
discretionary function inquiry. For this reason, the Dichter-Mad court denied an identical
discovery request, and this Court should reject it here, too.
Second, Plaintiffs argue that the motion to dismiss must be denied because the United
States has failed to present “admissible evidence” that SEC staff actually considered the policy
implications of warning the public about suspected wrongdoers such as Madoff. In Gaubert,
however, the Supreme Court held that the United States is not required to meet Plaintiffs’
suggested standard. Rather, the operative question is hypothetical: Is the challenged
discretionary function susceptible to policy analysis? Whether government employees actually
considered competing policies, or whether that could ever be proven, is simply irrelevant.
1
— F. Supp. 2d — , No. CV09-9061-SVW, 2010 WL 1632628 (C.D. Cal. Apr. 20, 2010).
1
Third, Plaintiffs attempt to discredit Dichter-Mad, where the plaintiffs presented claims,
and supporting arguments, identical to those presented here. In Dichter-Mad, the court applied
established Supreme Court precedent to conclude that the discretionary function exception bars
these claims. While it is unsurprising that Plaintiffs attempt to delegitimize the Dichter-Mad
decision—a sound rejection of their entire case—none of Plaintiffs’ criticisms is valid.
Finally, Plaintiffs continue to ignore, just as they did in their first response, precedent
supporting the position that even if SEC staff violated a mandatory directive, the discretionary
function exception would still bar their claims because the Commission retained the ultimate
discretion to take action against Madoff or warn his investors, and it is the Commission’s failure
to act on which Plaintiffs’ claims are “based.” The Dichter-Mad court applied this principle in
rejecting the plaintiffs’ claims, and Plaintiffs in this case have offered no reason why this
principle should not apply here, as well.
I. Discovery would not alter the discretionary function analysis.
Despite their inability to state a claim within the Court’s subject-matter jurisdiction,
Plaintiffs seek to conduct discovery. Specifically, they hope to find informal, even “unwritten,”
agency policies not codified in the statutes or regulations that govern the SEC, and not identified
by the IG in his comprehensive 457-page report. But it is Plaintiffs’ burden to plead
non-conclusory facts that plausibly state a claim that would not be barred by the discretionary
function exception.2 Plaintiffs, having failed to satisfy their pleading burden, cannot avoid
2
See Reply Mem. (Doc. 16.) at 3-5; see also Ashcroft v. Iqbal, — U.S.—, 129 S. Ct. 1937,
1949-50 (2009).
2
dismissal by speculating that informal mandatory policies might be unearthed during discovery.
In any event, the discovery sought by Plaintiffs is improper as a matter of law, as it could not
alter the discretionary function analysis.3
For purposes of the discretionary function inquiry, only “established governmental
policy” can cabin discretion.4 In determining whether an agency has established such a policy,
“courts customarily defer to the statements of the official policymaker, not others, even though
[they] may occupy important agency positions.”5 Informal policies, even if written in purportedly
mandatory terms, simply lack the “decretory significance” that is required to bind an agency actor
for purposes of the discretionary function exception.6 This is especially true when the agency
has, by regulation, “unambiguously define[d] the nature of the challenged conduct.”7 In such
situations, “the discretionary function inquiry is at an end.”8 This is exactly the situation here.
By statute, Congress has defined the SEC’s investigations and examinations to be
3
See generally id. at 28.
4
See Irving v. United States, 162 F.3d 154, 165 (1st Cir. 1998) (“The Gaubert Court
instructed inferior courts to look to the requirements set forth by ‘established governmental
policy’ in mounting a discretionary function inquiry.”) (quoting Gaubert v. United States, 499
U.S. 315, 324 (1991)).
5
Id. at 166.
6
Id.; see also Goetz & Sons W. Meat LLC v. United States, No. C07-00986MJP, 2008
WL 449654, at *3 (W.D. Wash. Feb. 19, 2008) (“Although Plaintiff contends that further
discovery will uncover internal policies governing the protocol for an inspector’s actions, internal
policies do not have the effect of law and could not transform Plaintiff’s claims into claims
properly asserting subject matter jurisdiction.”) (citation omitted).
7
Irving, 162 F.3d at 165.
8
Id.
3
discretionary.9 By regulation, the Commission has done the same.10 Additionally, the
Commission has established a policy that directly undercuts Plaintiffs’ failure-to-warn claim:
Section 202.5(a) of the Commission’s regulations provides that SEC investigations are to be
“non-public,” “[u]nless otherwise ordered by the Commission.”11 These regulations plainly did
not require SEC staff to investigate Madoff in a certain way, or to warn his investors that he may
have been violating the securities laws. Most significantly, because these “legislative rules
unambiguously define the nature of the challenged conduct” as discretionary, “the discretionary
function inquiry is at an end.”12 It does not matter, therefore, whether the SEC’s guidance-only
Enforcement Manual existed before 2008,13 or whether there exists some unwritten “policy” with
respect to “the method by which [the SEC] assigned personnel,” or “the method by which those
personnel were supervised.”14 Because “established governmental policy”—in the form of the
statutes and regulations that specifically govern the SEC’s investigations—gives the SEC
discretion, “the discretionary function inquiry is at an end,” and discovery is not permitted.
Recognizing this, the Dichter-Mad court denied an identical discovery request made by
the plaintiffs there. Applying the plausibility standard established by the Supreme Court’s
9
See, e.g., 15 U.S.C. § 78q(a) & (b)(1); 15 U.S.C. § 78u(a)(1); 15 U.S.C. § 80b-4(a).
10
See, e.g., 17 C.F.R. § 202.5.
11
17 C.F.R. § 202.5(a).
12
See Irving, 162 F.3d at 165.
13
See Pls.’ Surreply (Doc. 20) at 6.
14
Id. at 9.
4
decisions in Twombly and Iqbal,15 the court held that the complaint—the same complaint at issue
here—“failed to allege sufficient ‘facts to raise a reasonable expectation that discovery will
reveal evidence’ supporting their conclusory assertions.”16 The court therefore found itself
“barred from ‘unlock[ing] the doors of discovery for a plaintiff armed with nothing more than
conclusions.’”17
What made the plaintiffs’ claims so implausible, the Dichter-Mad court held, was the
existence of established government policy, in the form of statutes and regulations, that “firmly
lodged in the SEC’s discretion” “whether and how to conduct investigations and enforcement
actions.”18 The court cited both the Securities and Exchange Act of 1934 and the SEC’s “own
regulations” to support its conclusion that “the agency retains broad discretion to decide how to
conduct its investigations.”19 “In light of this statutory and regulatory language,” it observed,
“courts have unanimously rejected challenges to the SEC’s use of its investigatory powers.”20
In their surreply, Plaintiffs do not mention these statutes and regulations, but ignoring
15
See Dichter-Mad, 2010 WL 1632628, at *35-37.
16
Id. at *35 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007)).
17
Id. (quoting Iqbal, 129 S. Ct. at 1950).
18
Id. at *23; id. at *18 (holding that “the SEC retains discretion over when and how to
conduct its investigations”); id. at *19 (“[T]he agency retains broad discretion to decide how to
conduct its investigations.”); id. at *28 (“As noted repeatedly in this Order, the SEC retained
discretion to make policy-based decisions about the manner and scope of its investigations.”); id.
at *29 (“SEC staff had broad discretion to determine how to conduct its investigations[.]”); id. at
*32 (“As has been shown repeatedly throughout this Order, the SEC retained discretion to decide
how to conduct its investigations . . . .”).
19
Id. at *19.
20
Id. (discussing cases).
5
them does not diminish their significance. Indeed, as Dichter-Mad recognized, the existence of
these formally established policies is what distinguishes this case from the one on which
Plaintiffs principally rely, Ignatiev, assuming that case is still good law.21
In Ignatiev, the pertinent statute specifically contemplated that the agency’s director “may
prescribe” additional duties.22 The Ignatiev court therefore concluded that such duties might
exist in discoverable materials. Here, in contrast, the governing statutes and regulations
contemplate the opposite. Rather than authorize the creation of mandatory rules governing SEC
investigations, the formal policies established by Congress and the Commission provide that the
SEC should “make such investigations as it deems necessary,” and should, “in its discretion . . .
investigate any facts, conditions, practices, or matters which it may deem necessary or proper.”23
There is simply no room to conclude, as did the court in Ignatiev, that these laws contemplate the
informal creation of “mandatory” policies by someone other than Congress or the Commission.
(It is thus no surprise that the IG, in his comprehensive 457-page report, did not identify any
mandatory policies.24)
Finally, this Court should not permit Plaintiffs to convert this case from one barred by the
discretionary function exception to one grounded in FOIA. This is not a FOIA case. The United
States need not litigate here whether the SEC properly rejected “nearly all of [Plaintiffs’] FOIA
21
Id. at *36 n.23 (questioning whether Ignatiev survives the Supreme Court’s decisions in
Twombly and Iqbal).
22
Ignatiev v. United States, 238 F.3d 464, 467 (D.C. Cir. 2001) (quoting 3 U.S.C. § 202).
23
15 U.S.C. § 78u(a)(1); see also 17 C.F.R. § 202.5.
24
See Reply Mem. (Doc. 16) at 19-20.
6
requests,” and it need not explain why the SEC’s FOIA appeals office allegedly “ignored”
Plaintiffs’ subsequent appeal.25 Moreover, the United States did not, as Plaintiffs suggest, rely on
the SEC’s FOIA response to demonstrate the non-existence of mandatory policies. That point is
sufficiently demonstrated, as a matter of law, by the statutes and regulations that govern the SEC,
which grant it broad discretion in its investigations. And even if Plaintiffs’ potential FOIA case
had merit—a question far beyond the borders of the instant complaint—it would have no bearing
on whether Plaintiffs are entitled to discovery on a claim that is, as a matter of law, barred by the
discretionary function exception, and over which this Court has no jurisdiction.26 This Court,
like the court in Dichter-Mad, is therefore “barred from ‘unlock[ing] the doors of discovery.’”27
II.
Proof that the SEC actually considered policy factors is unnecessary because the
challenged conduct is “susceptible to policy analysis.”
Plaintiffs fault the United States for failing to “provide evidence of . . . the SEC’s
competing policy considerations in choosing not to warn Plaintiffs about the danger posed by the
Madoff scheme.”28 According to Plaintiffs, the United States was required to provide “sworn
statements of actual agency policy considerations.”29
25
See Pls.’ Surreply (Doc. 20) at 7-8.
26
See McQueen v. United States, 179 F.R.D. 522, 530-31 (S.D. Tex. 1998) (recognizing “the
Supreme Court’s numerous pronouncements that FOIA and discovery . . . serve separate
purposes and accordingly operate under different rules”).
27
Dichter-Mad, 2010 WL 1632628, at *35 (quoting Iqbal, 129 S. Ct. at 1950).
28
Pls.’ Surreply (Doc. 20) at 9.
29
Id. at 10.
7
But this is not what the Supreme Court requires. In Gaubert, the Court held that the test’s
second part focuses not on whether the challenged function was actually the result of policy
analysis, but only on whether it is “susceptible to policy analysis.”30 This “requirement for a
policy nexus is an objective not a subjective one.”31 Whether government employees actually
considered policy factors is irrelevant to whether the test is satisfied.32 The Court should
therefore reject Plaintiffs’ argument that their claims are not barred by the discretionary function
exception because the United States failed to prove that the SEC considered policy factors in
deciding not to warn Madoff’s investors. Instead, as explained in the United States’ reply
30
Gaubert, 499 U.S. at 325 (emphasis added).
31
Rosebush v. United States, 119 F.3d 438, 444 (6th Cir. 1997); see also Shansky v. United
States, 164 F.3d 688, 696 (1st Cir. 1999) (recognizing that the Gaubert inquiry is “objective”);
Viault v. United States, 609 F. Supp. 2d 518, 526 (E.D.N.C. 2009) (recognizing that test’s second
part “is an objective inquiry”); Rogers v. United States, 187 F. Supp. 2d 626, 631 n.3 (N.D. Miss.
2001) (“[B]y employing the ‘susceptible to policy analysis’ language, the two-step inquiry laid
out in Berkovitz was somewhat expanded by the Gaubert Court, and the burden on the
government made to be more easily shouldered. . . . Thus, since Gaubert, the second prong of
the two part inquiry has shifted from a factual inquiry to an hypothetical one.”); Alef v. United
States, 990 F. Supp. 932, 934 (W.D. Mich. 1997) (“The inquiry is an objective one . . . .”).
32
See Macharia v. United States, 334 F.3d 61, 67 (D.C. Cir. 2003) (rejecting argument that
“Gaubert’s second step requires evidence that decision makers actually considered social,
economic, or policy considerations”); Shansky, 164 F.3d at 692 (“In fine, an inquiring court need
not ask whether government actors decided the point explicitly or actually discussed it, for the
inquiry hinges instead on whether some plausible policy justification could have undergirded the
challenged conduct. The critical question is whether the acts or omissions that form the basis of
the suit are susceptible to a policy-driven analysis, not whether they were the end product of a
policy-driven analysis.”); C.R.S. v. United States, 11 F.3d 791, 798 (8th Cir. 1993) (“Defendant
could have considered a wide range of policy factors in making its decision; whether or not it
actually did so is immaterial under Gaubert.”); Sea-Land Serv., Inc. v. United States, 919 F.2d
888, 892 (3d Cir. 1990) (“In determining whether the action of the government involves the
permissible exercise of policy judgment, we need not examine the record for evidence of a
conscious policy decision . . . . The relevant inquiry is whether the . . . matter [is] ‘susceptible to
policy analysis.’”).
8
memorandum, the decision whether to warn Madoff’s investors is susceptible to policy analysis,
and is thus protected by the discretionary function exception.33
III.
Dichter-Mad was carefully and correctly decided.
Plaintiffs make several fruitless attempts to discredit the Dichter-Mad decision. First,
Plaintiffs attempt to delegitimize the decision for reasons having nothing to do with its substance.
With disdain, they report that the Dichter-Mad plaintiffs include two attorneys who represented
themselves as well as the others.34 They accuse them of “plageriz[ing] Plaintiffs’ Complaint in
its entirety and fil[ing] it as their own in the Central District of California,”35 “a district that has
no connection to the Madoff scheme other than the residency of the plaintiffs there.”36 They note
that the Dichter-Mad plaintiffs “erroneously named the SEC as a party defendant.”37 They even
fault the court for resolving the case in just under five months (“‘rocket docket’ treatment,”
according to Plaintiffs).38 Finally, Plaintiffs cry “gamesmanship” because the United States’
attorneys did not “advise [them] of the existence of the Dichter-Mad litigation.”39
None of this matters. The Dichter-Mad plaintiffs were represented by counsel, who
33
See Reply Mem. (Doc. 16) at 15.
34
See Pls.’ Surreply (Doc. 20) at 10.
35
Id.
36
Id. at 3-4.
37
Id. at 11.
38
Id.
39
Id.
9
presented the same arguments that Plaintiffs present here—indeed, the Dichter-Mad plaintiffs
filed, as their surreply, a verbatim photocopy of the opposition memorandum filed by Plaintiffs in
this case. That the Dichter-Mad plaintiffs copied Plaintiffs’ papers only demonstrates why that
decision is so pertinent here. That they sued the SEC is irrelevant to the validity of their claims
against the United States, which they also named as a defendant. In any event, the opinion in that
case spent just three paragraphs dispatching the plaintiffs’ SEC-related claims; the rest of the
opinion was dedicated to rejecting the exact claims against the United States that Plaintiffs
present here. Nor does it matter that the case was decided relatively quickly. The motion to
dismiss was fully briefed, and the court held oral argument. As is evident from its lengthy—and
thoroughly researched and reasoned—opinion, the court had all that it needed to conclude that
the discretionary function exception bars these claims. Plaintiffs’ point that the Dichter-Mad
court sits in Los Angeles, rather than New York, hardly merits a response, except to note that the
Supreme Court’s decision in Gaubert, on which Dichter-Mad was based, binds courts equally in
both jurisdictions. Finally, Plaintiffs offer no reason why the United States should be expected to
inform them of every case from around the country that presents claims similar to theirs, or why
its failure to do so could possibly matter. The bottom line is that the Dichter-Mad case was
carefully and correctly decided, notwithstanding Plaintiffs’ misguided attempts to discredit it.
Second, Plaintiffs argue that the Dichter-Mad decision should not be followed because it
failed to address two of Plaintiffs’ arguments: (1) that the SEC had a mandatory duty to warn
Madoff’s investors and (2) “that some conduct is so inattentive or foolish or self-absorbed that it
violates mandatory duties, regardless of whether those duties are reduced to a policy.”40
40
Id. at 12.
10
But the United States has previously explained why Plaintiffs’ “failure-to-warn”
argument is barred by the discretionary function exception,41 and the Dichter-Mad opinion may
not be faulted for declining to expressly discuss such a meritless point.42 The United States has
also previously explained why Plaintiffs are wrong that the discretionary function exception can
be defeated in the absence of a mandatory policy.43 Contrary to what Plaintiffs argue, the
Dichter-Mad court did not commit “reversible error” by limiting “potential government liability
to circumstances where there is in place a written, mandatory policy.”44 Rather, that is exactly
what the first part of the Gaubert test requires to defeat the discretionary function exception.45
41
See generally Reply Mem. (Doc 16) at 11-15.
42
See Rita v. United States, 551 U.S. 338, 356 (2007) (“Sometimes a judicial opinion
responds to every argument; sometimes it does not; sometimes a judge simply writes the word
‘granted,’ or ‘denied’ on the face of a motion while relying upon context and the parties’ prior
arguments to make the reasons clear. The law leaves much, in this respect, to the judge’s own
professional judgment.”); Potts v. Sec’y of Health & Human Servs., No. 92-6267, 1993 WL
303363, at *9 (6th Cir. Aug. 9, 1993) (“Appellants contend lastly that the district court erred
because its opinion did not expressly respond to or comment upon every factual and legal
argument made by appellants. We do not believe that the district court has an obligation to
address explicitly every point raised by the parties.”).
43
See generally Reply Mem. (Doc. 16) at 22-24.
44
Pls.’ Surreply (Doc. 20) at 13.
45
See Gaubert, 499 U.S. at 328 (“We first inquire whether the challenged actions were
discretionary, or whether they were instead controlled by mandatory statutes or regulations.”)
(emphasis added); see also, e.g., Baum v. United States, 986 F.2d 716, 720 (4th Cir. 1993) (“The
[first] inquiry boils down to whether the government conduct is the subject of any mandatory
federal statute, regulation, or policy prescribing a specific course of action. . . . If no such
mandatory statute, regulation, or policy applies to remove the challenged conduct from the choice
and judgment of the government, then we move to the second tier of the Berkovitz-Gaubert
analysis.”); Callahan v. United States, 329 F. Supp. 2d 404, 407 (S.D.N.Y. 2004) (“First, the
Court must determine whether the challenged action involves an element of choice or judgment,
as opposed to a circumstance in which a federal statute, regulation, or policy specifically
prescribes a course of action for an employee to follow. If no such mandate exists, the action is
11
Because it properly applied this test, Dichter-Mad was correctly decided, and may be relied on by
this Court and others.
Finally, the unpublished Fifth Circuit case Plaintiffs cite does not support their argument
that they may defeat the discretionary function exception without a violation of a mandatory and
specific policy. In Garza v. United States, the court first recognized that Gaubert requires courts
to “determine whether a statute, regulation, or policy mandates a specific course of action.”46 It
then found that requirement to be met because the guard’s post orders “prescribe[d] a set course
of action for the post guard on duty to follow.”47 Indeed, the court found the post orders to be
“quite specific, providing an hour-by-hour and, in some cases, minute-by-minute ‘to do’ list
covering the post guard’s shift.”48 These “numerous specific and unambiguous directives”
caused the court to conclude that Gaubert’s requirement was not met.49 Had the Dichter-Mad
court been confronted with allegations of such specific, mandatory policies, and had they not
been contradicted by federal statutes and regulations that expressly provide discretion, the result
there may have been different. But because it was presented with only conclusory allegations
about informal policies—the exact allegations in Plaintiffs’ Complaint here—the Dichter-Mad
court correctly held that the discretionary function exception bars the relief sought.
considered one of choice or judgment and the first step is satisfied.”) (citations omitted).
46
Garza v. United States, 161 Fed. App’x 341, 343 (5th Cir. 2005).
47
Id. at 344.
48
Id. at 345
49
Id.
12
IV.
Plaintiffs’ claims would be barred even if the SEC violated mandatory policies, as
the Commission retained the ultimate discretion to stop Madoff and warn his
investors.
Finally, Plaintiffs have again failed to address a fatal flaw in their case identified by the
United States in both its motion and reply. That is, even if SEC staff violated mandatory
policies, the intervening discretionary acts (or omissions) of the Commission require application
of the discretionary function exception.50 This principle also served as a basis for the DichterMad decision. There, the court recognized that “an otherwise actionable agency decision is
immune from suit if ‘a totally separate exercise’ of ‘independent’ and ‘broad based discretion’
‘intervenes between an alleged government wrongdoer and the harm suffered by a plaintiff.’”51
The court concluded that any violations of mandatory policies by SEC staff during the Madoff
investigations were followed by “intervening exercises of independent and broad-based
discretion” by other SEC employees.52 Because those employees independently decided not to
prosecute Madoff, the court held that the discretionary function exception applied,
notwithstanding any earlier violations of mandatory procedures.53
Despite repeated opportunities to do so, Plaintiffs have made no attempt to explain why
this principle does not apply equally here to bar their suit. Plaintiffs did not address this
argument in their initial response, and they do not address it in their surreply. But, again, this
50
See Mot. (Doc. 6) at 12-15; Reply Mem. (Doc. 16) at 6-11.
51
Dichter-Mad, 2010 WL 1632628, at *32 (quoting Gen. Dynamics Corp. v. United States,
139 F.3d 1280, 1285 (9th Cir. 1998)).
52
Id. at *34.
53
Id.
13
flaw in Plaintiffs’ suit does not disappear simply because Plaintiffs choose to ignore it. Even if
SEC staff violated a mandatory directive, other government officials, including the Commission
itself, ultimately made their own discretionary decisions not to prosecute Madoff, not to
investigate him further, and not to warn his investors. These “intervening discretionary
decisions” render Plaintiffs’ claims barred by the discretionary function exception, and require
dismissal of this lawsuit.
CONCLUSION
The challenged conduct in this case is committed to the SEC’s discretion and grounded in
policy. The discretionary function exception therefore bars Plaintiffs’ suit, and the Court should
dismiss it for lack of subject-matter jurisdiction.
Respectfully submitted,
PREET BHARARA
United States Attorney
Southern District of New York
TONY WEST
Assistant Attorney General
PHYLLIS J. PYLES
Director, Torts Branch
s/ Sarah S. Normand
SARAH S. NORMAND
NEIL M. CORWIN
Assistant United States Attorneys
Southern District of New York
86 Chambers Street, Third Floor
New York, NY 10007
212-637-2709
sarah.normand@usdoj.gov
neil.corwin@usdoj.gov
MARY M. LEACH
Assistant Director, Torts Branch
s/ Jeffrey Paul Ehrlich
JEFFREY PAUL EHRLICH
Trial Attorney, Torts Branch
Department of Justice
Ben Franklin Station, P.O. Box 888
Washington, D.C. 20044
202-353-2574
jeff.ehrlich@usdoj.gov
14
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