Zelaya et al v. United States of America, No. 0:2011cv62644 - Document 90 (S.D. Fla. 2013)

Court Description: ORDER granting 47 Motion to Dismiss for Lack of Jurisdiction. Signed by Judge Robert N. Scola, Jr. on 8/12/2013. (rss)

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Zelaya et al v. United States of America Doc. 90 U N ITED STATES D ISTRICT COU RT SOU TH ERN D ISTRICT OF FLORID A Cas e N o . 11-6 2 6 4 4 -Civ-SCOLA CARLOS ZELAYA, individually, and GEORGE GLANTZ, individually and as trustee of the GEORGE GLANTZ REVOCABLE TRUST, for them selves and on behalf of all those persons sim ilarly situated, Plaintiffs, vs. UNITED STATES OF AMERICA, Defendant. _____________________________________/ ORD ER GRAN TIN G MOTION TO D ISMISS Carlos Zelaya, individually, and George Glantz, individually and as trustee of the Glantz Revocable Trust, brought this lawsuit against the United States alleging a single claim of negligence under the Federal Tort Claim s Act, 28 U.S.C. §§ 2671-2680 (“FTCA”). The United States of Am erica argues this Court lacks subject m atter jurisdiction over this case because the Plaintiffs’ claim s are barred under the Misrepresentation Exception to the FTCA. The United States is correct. Its Motion to Dism iss is granted, and this m atter is dism issed for lack of subject m atter jurisdiction. B ACKGROU N D 1 The Plaintiffs allege that, through the Securities and Exchange Com m ission’s (“SEC”) investigation, the United States uncovered a m assive fraud. According to the Am ended Com plaint, Robert Stanford operated a Ponzi schem e, selling fraudulent offshore certificates of deposit, and prom ising unreasonably high rates of return. (Am . Com pl. ¶ 1, ECF No. 39.) Stanford allegedly created the Stanford Group Com pany which prim arily functioned to prom ote investm ents into the Ponzi schem e. In 1995, Stanford Group Com pany registered as a broker/ dealer and investm ent adviser with the SEC. (Am . Com pl. ¶ 27, ECF No. 39.) Between 1997 and 20 0 4, the SEC received num erous com plaints about Stanford’s fraudulent activity. The SEC conducted several investigations, concluding after each investigation that Stanford was operating a Ponzi schem e. (Am . Com pl. ¶ 28, ECF No. 39.) 1 The factual background is taken from the allegations set out in the Amended Complaint, (ECF No. 1). A court considering a motion to dismiss must accept well-pleaded factual allegations as true. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 572 (2007); see also Grossman v. Nationsbank, N.A., 225 F.3d 1228, 1231 (11th Cir. 2000). Dockets.Justia.com The Plaintiffs assert that the SEC breached its duty “to notify” the Securities Investor Protection Corporation that Stanford’s com pany was in financial difficulty. 2 (Am . Com pl. ¶ 43, ECF No. 39.) According to the Am ended Com plaint, the Securities Investor Protection Corporation relies on the SEC “to notify” it about the financial insolvency of a broker or dealer. (Am . Com pl. ¶ 44, ECF No. 39.) Citing 15 U.S.C. § 78eee(a)(1), the Plaintiffs allege that the SEC had a non-discretionary obligation “to notify” the Securities Investor Protection Corporation, but failed to do so. (Am . Com pl. ¶¶ 45, 49, ECF No. 39.) The SEC’s negligence purportedly harm ed the Plaintiffs. As alleged, the SEC had a duty to the Plaintiffs “to report” Stanford’s Ponzi schem e to the Securities Investor Protection Corporation. (Am . Com pl. ¶ 52, ECF No. 39.) The SEC’s “failure [to report]” Stanford’s Ponzi schem e contributed to the growth of the schem e because Stanford lured investors by claim ing that his com pany was regulated and overseen by the SEC. (Am . Com pl. ¶ 53, ECF No. 39.) As a result of the SEC’s “failure to notify” the Securities Investor Protection Corporation that Stanford’s com pany was in financial difficulty, Stanford was able to continue defrauding investors through his Ponzi schem e. The Plaintiffs are som e of those defrauded investors. In its first m otion to dism iss, the United States argued that the Plaintiffs’ claim s should be dism issed because they were barred by the Discretionary Function Exception to the FTCA. This Court agreed that one of the Plaintiffs’ theories of liability was grounded in a discretionary function of the SEC. Zelay a v. United States, 890 F. Supp. 2d 1311, 1317-1320 (S.D. Fla. 20 12). But the Court concluded that the SEC had a duty to report Stanford’s com pany to the Securities Investor Protection Corporation once the SEC determ ined that Stanford’s com pany was in financial difficulty. Id. at 1316-1317. Under this reasoning the Plaintiff’s claim could not be dism issed under the Discretionary Function Exception. The United States now seeks dism issal of this claim under the Misrepresentation Exception to the FTCA. LEGAL S TAN D ARD S The United States filed its Motion to Dism iss for lack of subject m atter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). Attacks on subject m atter jurisdiction under Rule 12(b)(1) com e in two form s: “facial attacks” and “factual attacks.” Law rence v. Dunbar, 919 F.2d 1525, 1528-29 (11th Cir. 1990 ). Facial attacks challenge jurisdiction while accepting the plaintiff’s allegations as true for purposes of the m otion. Id. at 1529. In this case the United States has presented a facial attack on jurisdiction. (See Mot. Dism iss 4 n.3, ECF No. 47.) 2 Accordingly, the Court will look and see if the Plaintiff has The Plaintiffs assert that “[b]y definition, a Ponzi schem e is insolvent at its inception,” and is therefore in financial difficulty by its nature. (Am . Com pl. ¶ 47, ECF No. 39.) sufficiently alleged a basis of subject m atter jurisdiction; the allegations of the Am ended Com plaint will be taken as true. Law rence, 919 F.2d at 1529. A N ALYSIS The United States’s liability is both established and lim ited by the FTCA. Any discussion of litigation against the United States m ust begin with the foundational principle that the United States and its agencies are shielded from suit under the doctrine of sovereign im m unity. JBP Acquisitions, LP v. United States ex rel. FDIC, 224 F.3d 1260 , 1263 (11th Cir. 20 0 0 ) (quotin g FDIC v. M ey er, 510 U.S. 471, 475 (1994)). Through the FTCA, the United States has provided a lim ited waiver of sovereign im m unity. Id. The FTCA opens the United States up to liability “for injury or loss of property . . . caused by the negligent or wrongful act or om ission of any em ployee of the Governm ent while acting within the scope of his office or em ploym ent . . . .” 28 U.S.C. § 1346(b)(1). There are several exceptions to the FTCA that “m ust be strictly construed in favor of the United States.” JBP Acquisitions, 224 F.3d at 1263. “If the alleged conduct falls within one of these statutory exceptions, the court lacks subject m atter jurisdiction over the action.” Id. at 1263-64. The United States argues that the Plaintiffs’ claim falls within the Misrepresentation Exception of the FTCA. The Misrepresentation Exception bars any claim “arising out of . . . m isrepresentation, [or] deceit.” 28 U.S.C. § 2680 (h). “Section 2680 (h) thus relieves the Governm ent of tort liability for pecuniary injuries which are wholly attributable to reliance on the Governm ent’s negligent m isstatem ents.” Block v. N eal, 460 U.S. 289, 297 (1983). While the FTCA does not bar negligence actions which focus on “the Governm ent’s breach of a different duty,” the FTCA does bar claim s based on “the Governm ent’s failure to use due care in com m unicating inform ation.” Id. For exam ple, where the Governm ent had taken on the responsibility of supervising the construction of a person’s house, a claim that the Governm ent failed to use due care in ensuring that the builder adhered to approved plan s and cured any defects before com pleting construction was not barred by the Misrepresentation Exception. Id. at 297. On the other hand, where the Governm ent inspected a hom e to determ ine its estim ated value for the purpose of issuing m ortgage insurance, the hom eowners’ claim that they overpaid for the hom e because they relied on the Governm ent’s appraised value was barred by the Misrepresentation Exception. United States v. Neustadt, 366 U.S. 696, 698-70 0 , 710 (1961). As one court has explained, “[t]he intent of [Section 2680 (h)] is to except from the Act cases where m ere ‘talk’ or failure to ‘talk’ on the part of a governm ent em ployee is asserted as the proxim ate cause of dam age sought to be recovered from the United States.” N at’l Mfg. Co. v. United States, 210 F.2d 263, 276 (8th Cir. 1954). The Plaintiffs’ have failed to m aneuver their claim outside of the Misrepresentation Exception. The Plaintiffs argue that their claim s are “not based on the SEC’s lack of due care when com m unicating to [the Securities Investor Protection Corporation], but rather, its failure to com plete the sim ple, operational task of sending a required notification to [the Securities Investor Protection Corporation] upon concluding that Stanford’s operations were in or approaching financial difficulty.” (Pls.’ Resp. 12-13, ECF No. 56.) “The test in applying the m isrepresentation exception is whether the essence of the claim involves the governm ent's failure to use due care in obtaining and com m unicating inform ation.” JBP Acquisitions, 224 F.3d at 1264. “It is the substance of the claim and not the language used in stating it which controls whether the claim is barred by [a] FTCA exception.” Id. (quotation om itted). “The m isrepresentation exception encom passes failure to com m unicate as well as m iscom m unication.” Id. at 1265 n.3. The Plaintiffs’ cause of action is based on the assertion that the SEC failed to com m unicate inform ation about Stanford’s com pany to the Securities Investor Protection Corporation. The Plaintiffs repeatedly characterize the SEC’s wrongdoing as a failure to notify or report. (Am . Com pl. ¶¶ 21, 43-45, 49-53, ECF No. 39.) The crucial elem ent in the Plaintiffs’ chain of causation is the alleged failure to com m unicate inform ation about Stanford’s com pany. The Plaintiffs cannot disguise the essence of their negligent m isrepresentation claim by repackaging the SEC’s alleged negligence from having failed to “notify” or “report” (as alleged in their pleading) to having failed to send the required notification (as written in their responsive brief). Cf. Mt. Hom es, Inc. v. United States, 912 F.2d 352, 356 (9th Cir. 1990 ) (looking beyond the plaintiff’s “characterization” of the claim to th e actual conduct on which the claim is based). One group of the cases relied upon by the Plaintiffs is distinguishable because those cases involve factual scenarios where the plaintiff is seeking to recover for the Governm ent’s alleged negligent perform ance of an operational task – as opposed to trying to hold the Governm ent liable for negligently com m unicating inform ation. See, e.g., Met. Life Ins. Co. v. Atkins, 225 F.3d 510 , 513 (5th Cir. 20 0 0 ) (addressing a case where the Governm ent’s alleged negligent act was failing to preserve and properly file the correct copy of an individual’s lifeinsurance-beneficiary form ); JM Mech. Corp. v. United States, 716 F.2d 190 , 195 (3d Cir. 1983) (articulating the alleged actionable wrongdoing on the part of the United States as failing to secure valid perform ance and paym ent bonds on projects for which it guaranteed a m ortgage); Guild v. United States, 685 F.2d 324, 326 (9th Cir. 1982) (finding the Misrepresentation Exception was not applicable because the plaintiff alleged that the United States was negligent in designing and planning for a dam and reservoir). A second group of cases relied on by the Plaintiffs is also distinguishable because they do not involve econom ic injury flowing from a com m ercial decision. See, e.g., Mandel v. United States, 793 F.2d 964, 967 (8th Cir. 1986) (addressing a park ranger’s negligence in failing to warn a swim m er of the danger of subm erged rocks after the park ranger recom m ended a particular swim m ing area where the swim m er was later injured upon diving into the water and striking his head on a rock); Lem ke v. City of Port Jervis, 991 F. Supp. 261, 263-64 (S.D.N.Y. 1998) (declining to hold that the Misrepresentation Exception barred a claim that a hom e-safety inspection was conducted negligently where the inspection failed to reveal lead plum bing that later caused substantial developm ental difficulties to a sm all child living in the hom e); McN eil v. United States, 897 F. Supp. 30 9, 311-12 (E.D. Tex. 1995) (explaining that a claim against the Governm ent for its failure to warn a fam ily of a faulty sm oke detector, resulting in a young child’s death due to a house fire, was not barred by the Misrepresentation Exception). The cases in the second group are exam ples of the com m ercial-decision distinction announced by the Suprem e Court in interpreting Section 2680 (h) of the FTCA. The tort of negligent m isrepresentation has been confined largely to the invasion of financial or com m ercial interests in the course of business dealings. United States v. Neustadt, 366 U.S. 696, 711 n.26 (1961) (quoting William L. Prosser, Prosser on Torts § 85 Rem edies for Misrepresentation at 70 2-0 3 (West Pub. Co., 1st ed. 1941)). Many form s of negligent conduct have an elem ent of m isrepresentation, such as where a driver gives a m isleading turn signal that causes an auto accident, or where work forem an declares an area perfectly safe causing an inspector to proceed into an area where he is later injured by a dynam ite blast. Prosser & Keeton on Torts, § 10 5 Rem edies for Misrepresentation at 725 (W. Page Keeton, et al. eds., 5th ed. 1984). But m isrepresentation, as a separate tort, exists to protect the econom ic interests of those who are induced to enter into disadvantageous business transactions through the fraud or m isrepresentation of others. Id. at 726. The tort of m isrepresentation is lim ited to situations where a m isleading (or fraudulent) statem ent or action induces a person to m ake a financial or com m ercial decision, in the course of business dealings. Id. “The typical case . . . is one in which the plaintiff has parted with m oney, or property of value, in reliance upon the defendant’s representations.” Id. at 726-27; see also Preston v. United States, 595 F.2d 232, 239 (7th Cir. 1979) (“The test is not whether the injury was econom ic, but whether it resulted from a com m ercial decision based on a governm ental m isrepresentation.”). Given this fram ework, it is clear that the Plaintiffs’ claim in this case falls within the rubric of the com m ercial-decision cases. The Plaintiffs com plain that because of the SEC’s failure to notify or report Stanford’s Ponzi schem e to the Securities Investor Protection Corporation, they chose to invest in Stanford’s com pany. In other words, the Plaintiffs claim is that they were induced into entering disadvantageous business transactions because of the SEC’s m isrepresentation. The Plaintiffs’ cause of action is a classic claim for m isrepresentation. As such, it is barred by Section 2680 (h) of the FTCA. The Plaintiffs do not, and cannot, analogize their case to United States v. Block, 460 U.S. 289 (1983). In Block the Court explained that although the Governm ent “m ay have undertaken to both supervise construction of [plaintiff’s] house and to provide [plaintiff] inform ation regarding the progress of construction, [plaintiff’s] action is based solely on the form er conduct.” Block, 460 U.S. at 299. In this case, the Plaintiffs do not allege (nor could they) that the SEC com m itted to investigate Stanford’s com pany for them . The Plaintiffs’ cause of action in this case is lim ited to the SEC’s lack of com m unication to the Securities Investor Protection Corporation regarding Stanford’s com pany. Here, the Plaintiffs’ lawsuit is akin to the claim in Block that the Governm ent failed to provide inform ation regarding the progress of construction; a claim that the Court found was not actionable because of the Misrepresentation Exception. See id. CON CLU SION As explained above, the wrongdoing alleged by the Plaintiffs on the part of the Governm ent falls into the Misrepresentation Exception of the FTCA. As such this Court lacks subject m atter jurisdiction over this m atter. See JBP Acquisitions, 224 F.3d at 1263-64. Accordingly, it is ORD ERED that the United States’s Motion to Dism iss (ECF No. 47) is GRAN TED . The Plaintiffs Am ended Com plaint is D ISMISSED with prejudice. The Clerk shall CLOSE this case; any pending m otions are denied as m oot. D ON E an d ORD ERED in cham bers, at Miam i, Florida, on August 12, 20 13. _____________________________ ROBERT N . SCOLA, JR. U N ITED STATES D ISTRICT J U D GE

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