Dichter-Mad Family Partners, LLP v. United States

• Decision Date: 28 January 2013
• Docket Number: No. 11-55577,D.C. No. 2:09-CV-09061- SVW-FMO,11-55577
• Parties: DICHTER-MAD FAMILY PARTNERS, LLP; PHILIP JAY DICHTER; CLAUDIA GVIRTZMAN DICHTER; RICHARD M. GORDON, Plaintiffs-Appellants, v. UNITED STATES OF AMERICA, Defendant-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

DICHTER-MAD FAMILY PARTNERS, LLP; PHILIP JAY DICHTER;CLAUDIA GVIRTZMAN DICHTER; RICHARD M. GORDON, Plaintiffs-Appellants,

v.UNITED STATES OF AMERICA, Defendant-Appellee.

No. 11-55577

D.C. No. 2:09-CV-09061- SVW-FMO

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

DATED: April 20, 2010

Filed January 28, 2013

FOR PUBLICATION

OPINION

Appeal from the United States District Court

for the Central District of California

Stephen V. Wilson, District Judge, Presiding

Argued and Submitted

January 10, 2013—Pasadena, California

Before: Stephen Reinhardt, Kim McLane Wardlaw,

and Richard A. Paez, Circuit Judges.

Per Curiam Opinion

SUMMARY^*

Federal Tort Claims Act

The panel affirmed the district court's dismissal of an action alleging claims under the Federal Tort Claims Act.

The panel held that the district court correctly concluded that it lacked jurisdiction to entertain appellants' claims because they fell within the "discretionary function" exception to the United States' waiver of sovereign immunity in the Federal Tort Claims Act. The panel affirmed the district court's judgment of dismissal for lack of subject matter jurisdiction, and adopted Parts I through V of the district court's April 20, 2010 opinion, Dichter-Mad Family Partners, LLP v. United States, 707 F. Supp.2d 1016 (C.D. Cal. 2010). The panel also held that the additional allegations made in the Second Amended Complaint were insufficient to overcome the discretionary function exception to the Act's waiver of sovereign immunity. Finally, the panel held that the district court did not abuse its discretion in denying appellants' request for additional discovery.

COUNSEL

Richard H. Gordon (argued), Beverly Hills, California and Philip J. Dichter, Malibu, California, for Appellants.

Sparkle Sooknanan (argued), Lindsey Powell, Mark B. Stern, and Tony West, United States Department of Justice, Washington, D.C.; and André Birotte, Jr., United States Attorney, Los Angeles, California, for Appellee.

OPINION

PER CURIAM:

After careful de novo review of the record in this appeal, we conclude that the district court correctly concluded that it lacked jurisdiction to entertain Appellants' claims because they fall within the "discretionary function" exception to the United States' waiver of sovereign immunity in the Federal Tort Claims Act. 28 U.S.C. § 2680(a). Thus, we affirm the district court's judgment of dismissal for lack of subject matter jurisdiction and adopt Parts I through V of the district court's comprehensive and well-reasoned April 20, 2010 opinion, Dichter-Mad Family Partners, LLP v. United States, 707 F. Supp. 2d 1016 (C.D. Cal. 2010), as our own, and attach it to this opinion as an Appendix.

We further hold, as the district court also concluded in an unpublished order dismissing Appellants' claims with prejudice, that the additional allegations made in the Second Amended Complaint^** are insufficient to overcome the discretionary function exception to the Federal Tort Claims Act's waiver of sovereign immunity. Virtually all of the newly alleged mandatory duties are not in fact mandatorydirectives that would deprive the United States of its discretionary function immunity. See Terbush v. United States, 516 F.3d 1125, 1138 (9th Cir. 2008); Sabow v. United States, 93 F.3d 1445, 1453 (9th Cir. 1996) ("[T]he presence of a few, isolated provisions cast in mandatory language does not transform an otherwise suggestive set of guidelines into binding agency regulations."). Those policies that are arguably mandatory lack the causal relationship to the plaintiffs' alleged injuries required to establish jurisdiction, even under a generous reading of the complaint. "Where, as here, the harm actually flows from the prosecutor's exercise of discretion, an attempt to recharacterize the action as something else must fail." Gen. Dynamics Corp. v. United States, 139 F.3d 1280, 1286 (9th Cir. 1998).

Finally, the district court did not abuse its discretion in denying Appellants' request for additional discovery. "As we have explained, 'broad discretion is vested in the trial court to permit or deny discovery, and its decision to deny discovery will not be disturbed except upon the clearest showing that denial of discovery results in actual and substantial prejudice to the complaining litigant.'" Hallett v. Morgan, 296 F.3d 732, 751 (9th Cir. 2002) (alteration omitted) (quoting Goehring v. Brophy, 94 F.3d 1294, 1305 (9th Cir. 1996)). A plaintiff seeking discovery must allege "enough fact to raise a reasonable expectation that discovery will reveal" the evidence he seeks. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556 (2007); see also Gager v. United States, 149 F.3d 918, 922 (9th Cir. 1998) ("It is well-established that the burden is on the party seeking to conduct additional discovery to put forth sufficient facts to show that the evidence sought exists.") (internal quotation marks and alterations omitted). The district court's reasonedfinding that the plaintiffs failed to meet this burden was a proper exercise of its discretion. See Hallett, 296 F.3d at 751.

AFFIRMED.

APPENDIX

DICHTER-MAD FAMILY PARTNERS, LLP;

PHILIP DICHTER; CLAUDIA GVIRTZMAN

DICHTER; and RICHARD H. GORDON, Plaintiffs,

v.

UNITED STATES OF AMERICA;

SECURITIES EXCHANGE COMMISSION,

and Does 1-10, Defendants.

CV 09-9061 SVW (FMOx)

ORDER GRANTING DEFENDANTS'

MOTIONS TO DISMISS FOR LACK OF

JURISDICTION [6,7]

I. INTRODUCTION

A. BACKGROUND

Plaintiffs were investors in Bernard Madoff's Ponzi scheme.¹ Plaintiffs are bringing a Federal Tort Claims Act ("FTCA") actionagainst the Securities and Exchange Commission ("SEC") and the United States ("Government" or "Defendant"). Plaintiffs assert that the SEC "owes a duty of reasonable due care to all members of the general public including all investors in U.S. financial markets who are foreseeably endangered by its conduct." (Compl. ¶ 163.) Plaintiffs also assert that the SEC's negligent acts and omissions "caused Madoff's scheme to continue, perpetuate, and expand," and that the SEC "fail[ed] to terminate Madoff's Ponzi scheme despite its multiple opportunities to do so." (Compl. ¶ 2; see also Compl. ¶ 164.) Plaintiffs further assert that "Plaintiffs here were among those victimized by Madoff. Plaintiffs made their investments in reliance on Madoff's reputation, clean regulatory record, and the SEC's implied stamp of approval." (Compl. ¶ 8.) Because of the SEC's alleged negligence, Plaintiffs seek to recover their losses from their investments with Madoff.

Defendants have brought a pair of Motions to Dismiss, arguing that the Court lacks jurisdiction to hear the claims under the FTCA, 28 U.S.C. § 2674 et seq. Under the "discretionary function exception" to the FTCA, federal courts are barred from adjudicating tort actions arising out of federal officers' discretionary acts. 28 U.S.C. § 2680(a). In brief, officers are only liable if (1) the officers' actions were prescribed by statute, regulation, or policy, or (2) the officers' conduct was not susceptible to analysis on social, economic, or political policy grounds. See United States v. Gaubert, 499 U.S. 315, 322 (1991).²

The Complaint contains over fifty pages of allegations summarizing the SEC's failure to uncover Madoff's fraud. The Complaint also attaches five exhibits, the most substantial of which is the SEC Office of Inspector General's 450-page Investigation of Failure of the SEC to Uncover Bernard Madoff's Ponzi Scheme - Public Version [hereinafter "the Report"], which was released in August 2009. (Compl., Ex. A.)³ Plaintiffs purport to adopt the "factual allegations or determinations made in the report" by "fully incorporat[ing] by reference" the Report as a part of the Complaint. (Compl. ¶ 1 n.3.) This request is technically impermissible under Fed. R. Civ. P. 10(c), which only permits the incorporation of a legally operable "written instrument" such as a contract, check, letter, or affidavit. See, e.g., Rennie & Laughlin, Inc. v. Chrysler Corp., 242 F.2d 208, 209 & n.209 (9th Cir. 1957); see also Wright & Miller, 5A Federal Practice & Procedure § 1327 n.1 (3d ed. 2009 update). In contrast, items such as "newspaper articles, commentaries and editorial cartoons" are not properly incorporated into the complaint by reference. Perkins v. Silverstein, 939 F.2d 463, 467 n.2 (7th Cir. 1991); see also Wright & Miller, 5A Federal Practice & Procedure § 1327 n.2.

That said, Defendants have not objected to Plaintiffs' attempt to incorporate the Report by reference into the Complaint. (See generally Defs.' Motion; Defs.' Reply.) Additionally, Fed. R. Civ. P. 8(e) requires the Court to "construe[] pleadings so as to do justice." In order for the Court to comply with Rule 8(e) and give Plaintiffs the benefit of any plausible inferences contained in the Report (asPlaintiffs repeatedly urged the Court to do, see, e.g. Compl. ¶ 1 n.3, Sur-reply at 5 n.1), the Court has reviewed the full Report and treats it as though it were fully included in Plaintiffs' Complaint. Although this is an unusual procedure, there is clear legal authority permitting the Court to do so: Plaintiffs' Complaint "reference[s]" the Report "extensively," and the factual allegations contained in the Report are "integral to [their] claim." United States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003) (citations omitted). Thus, it is appropriate in this particular instance to consider the Report as part of Plaintiffs' allegations for purposes of the present Motion to Dismiss.

Although the inclusion of the Report results in an unusually long Complaint, the Ninth Circuit has counseled that an overly detailed complaint is acceptable under Fed. R. Civ. P. 8(a) if, for example, it is "organized, [and is] divided into a description of the parties, a chronological factual background, and a presentation of enumerated legal claims, each of which lists the liable Defendants and legal basis therefor." Hearns v. San Bernardino Police Dept., 530 F.3d 1124, 1132 (9th Cir. 2008). In the...