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Media Alerts - Zelaya v. United States- 11th Circuit
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April 20, 2015
  Zelaya v. United States- 11th Circuit
Headline: Eleventh Circuit finds the discretionary function and the misrepresentation exceptions apply to the general waiver of sovereign immunity under the Federal Tort Claim Act ("FTCA").

Area of Law: Government; Torts

Issue: Whether the discretionary function or misrepresentation exceptions to the sovereign immunity doctrine apply where the United States Securities and Exchange Commission ("SEC"), having information of a possible Ponzi scheme, failed to take action that may have prevented future losses.

Brief Summary: Carlos Zelaya and George Glantz ("Plaintiffs") sought to hold the SEC liable under the FTCA, alleging the SEC had breached two statutory duties through its inaction. The district court granted the Government's motion to dismiss, finding the SEC had sovereign immunity and was shielded from liability for its alleged negligence. The Eleventh Circuit affirmed the dismissal of both claims, finding the misrepresentation and the discretionary function exceptions applied to the SEC's general waiver of sovereign immunity under the FTCA.

Extended Summary: Plaintiffs invested into an Antiguan based company, Stanford Bank Ltd., as well as a series of entities operated by the bank, which turned out to be one of the biggest Ponzi schemes in American history. Despite four different investigations, the SEC failed to take any action against Stanford. The Plaintiffs filed two claims against the SEC under the FTCA. First, Plaintiffs argued the SEC had acted negligently in failing to notify the Securities Investor Protection Corporation ("SIPC"), pursuant to 15 U.S.C. § 78eee(a)(1), that Stanford Bank was running a Ponzi scheme. Second, Plaintiffs argued the SEC failed to revoke the bank's registration according to 15 U.S.C. § 80b-3(c). The district court initially granted the Government's motion to dismiss the registration claim, finding the discretionary function exception applied, but denied the motion as to the notification claim. Plaintiffs filed an amended complaint alleging only the notification claim. The district court granted the Government's motion to dismiss the claim based on the misrepresentation exception.

The Eleventh Circuit affirmed, finding the two exceptions to the general waiver of sovereign immunity applied. As to the registration claim, the court initially noted the SEC was not required to revoke a bank's registration under 15 U.S.C. § 80b-3(c), because that provision applied to granting or denying, rather than revoking, registration. The court further explained even if a duty existed, the SEC had discretionary authority to pursue violations of securities law, therefore the discretionary function exception under 28 U.S.C. § 2680(a) would apply. As to the notification claim, the court held the misrepresentation exception under 28 U.S.C. § 2680(h) applied to both miscommunication and non-communication by the Government. The court noted in order to overcome the application of the misrepresentation exception, Plaintiffs were required to show the Government breached an additional duty, distinct from the duty not to make a misrepresentation. Since Plaintiffs could not point to any separate "operational" duty the SEC had breached, the Eleventh Circuit affirmed the district court's dismissal of the Plaintiff's notification claim.

To view the full opinion:

Panel: Tjoflat, Julie Carnes, and Gilman (United States Circuit Judge for the Sixth Circuit, sitting by designation)

Argument: September 11, 2014

Date of Issued Opinion: March 30, 2015

Docket Number: 13-14780

Decided: Affirmed

Case Alert Author: Astrid Lopez, Maria Catala, David Schnobrick, Khristopher Salado

Counsel: Gaytri Kachroo, et al. for Appellants
Steve Frank, et al. for Appellee, USA

Author of Opinion: Circuit Judge Julie Carnes

    Posted By: Gary Kravitz @ 04/20/2015 10:50 AM     11th Circuit  

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