Rene Alvarez v. United States , 862 F.3d 1297 ( 2017 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 16-16479
________________________
D.C. Docket No. 3:13-cv-00174-TJC-MCR
RENE ALVAREZ, ET AL.,
Plaintiff - Appellants,
versus
UNITED STATES OF AMERICA,
Defendant - Appellee.
________________________
Appeal from the United States District Court
for the Middle District of Florida
________________________
(July 17, 2017)
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Before CARNES, Chief Judge, ROSENBAUM and HIGGINBOTHAM, ∗ Circuit
Judges.
HIGGINBOTHAM, Circuit Judge:
Current and former federal law enforcement employees and their spouses
deceived into investing in a Ponzi scheme presenting as the Federal Employee
Benefits Group, Inc. (“FEBG”) Bond Fund seek relief under the Federal Tort
Claims Act (“FTCA”), 28 U.S.C. § 1346(b)(1), asserting claims of negligent
conduct and aiding and abetting the scheme. The Government moved to dismiss
for lack of subject matter jurisdiction, relying upon the misrepresentation and
discretionary function exceptions to the FTCA. The district court agreed that the
misrepresentation exception applied and dismissed. We now AFFIRM.
I.
Around 1988, Kenneth Wayne McLeod began contracting with various
federal agencies to provide retirement advice to federal employees. McLeod
founded and ran the FEBG Bond Fund. Most of the Plaintiffs met McLeod at
retirement seminars hosted by their agency employer, where McLeod spoke
generally about finances and retirement and also pitched his fund. McLeod would
sometimes follow up with individual employees, promising high, secure returns in
the FEBG Bond Fund. Several Plaintiffs “invested” their life savings.
* Honorable Patrick E. Higginbotham, United States Circuit Judge for the Fifth Circuit,
sitting by designation.
2
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Around 2008, McLeod’s company began experiencing financial trouble. In
2010, a duped investor complained to the United States Securities and Exchange
Commission, and on June 17, 2010, McLeod admitted the fund was a Ponzi
scheme. Shortly thereafter, he committed suicide.
Plaintiffs sued the United States under the FTCA. They filed their original
complaint on February 19, 2013, alleging five counts against various federal
agencies. The United States moved to dismiss for lack of subject matter
jurisdiction and improper venue, alternatively for a stay. After a hearing, the
district court denied the Government’s motion without prejudice and allowed
discovery to proceed, finding that it needed a more developed record to resolve
the challenge to jurisdiction. Additional motions, 1 another hearing, discovery, an
unsuccessful settlement effort, and an amended complaint followed. Notably,
Plaintiffs’ amended complaint alleged that McLeod was a government employee,
not a contractor, a contention they stood by in defending the court’s jurisdiction.
Plaintiffs’ amended complaint contained six counts. Count I alleged McLeod
was negligent per se for selling unregistered securities which violated the Florida
Securities and Investor Protection Act. Count II alleged that government
employees aided and abetted McLeod in his sale of unregistered securities. Count
III alleged common law negligence, including breach of an employer/employee
1
On May 15, 2015, the Government moved to dismiss, which the district court granted.
The district court allowed Plaintiffs to file an amended complaint.
3
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duty of care, based on a number of theories. Plaintiffs additionally alleged that
government employees negligently failed to supervise McLeod. Count IV alleged
breach of fiduciary duty by, for example, allowing prohibited commercial
solicitation. Count V alleged negligent supervision, and count VI alleged
negligent infliction of emotional distress. The Government again moved to
dismiss for lack of subject matter jurisdiction.
On September 12, 2016, the district court found Plaintiffs’ claims barred by
sovereign immunity, focusing its ruling upon the misrepresentation exception to
the FTCA. Important to the arguments on appeal, the district court accepted
Plaintiffs’ new allegation that McLeod acted as a United States employee for
FTCA purposes. As the court recounted:
[P]laintiffs have at times altered their primary theories of liability to
try to state a viable FTCA claim. Also, the Court granted plaintiffs an
opportunity to conduct extensive jurisdictional discovery to try to
support their claims. The current and final iteration of their case is
premised on the contention that McLeod was an ‘employee’ of the
United States when he committed his wrongs. All causes of action in
the amended complaint assume that McLeod was an employee. While
this is different from plaintiffs’ earlier contention that McLeod was
not an employee [citations omitted], the Court assumes for purposes
of testing plaintiffs’ claims that McLeod was an employee of the
United States.
4
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Upon analyzing Plaintiffs’ “best case,”2 the district court found that two
“paradigm plaintiffs [could not] demonstrate that subject matter jurisdiction [was]
proper.” The district court found that Plaintiffs’ injuries from counts I and II—
negligence per se for McLeod’s selling unregistered securities, and governmental
aiding and abetting—“flow[ed] from the securities and McLeod’s representations
which underlay them being fraudulent, not because they were unregistered.” The
court therefore found that McLeod’s failure to register was not an independent
cause of Plaintiffs’ harm. As for the other counts, the district court found that the
“crucial component of plaintiffs’ claims . . . is that McLeod . . . lied about the
bona fides of the FEBG Bond Fund, and other government employees, either
expressly or impliedly, convinced plaintiffs to trust McLeod and invest with him.”
The court concluded that Plaintiffs’ injuries were “dependent” on the
misrepresentations and omissions of McLeod and other governmental employees,
and were consequently barred.
Plaintiffs appeal.
2
The court thus “put[] aside those investors who were not employed by the government,
those who did not invest in the FEBG Bond Fund but hired McLeod to manage their investment
portfolio, those who did not meet McLeod at a government-sponsored seminar or who did not
attend a seminar at a GSA-controlled venue.” It also presumed a plaintiff who lived in Florida
for venue purposes, and identified two plaintiffs who fit this criteria.
5
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II.
“We review a district court’s dismissal of an action for lack of subject matter
jurisdiction de novo.”3 Unless it consents, the United States retains sovereign
immunity from suit. 4 Relevant here, the United States has waived its immunity for
claims under the FTCA. 5 “[W]hile the FTCA, as a general matter, waives what
would otherwise be the federal government’s sovereign immunity from legal
actions for torts committed by its employees, there are exceptions to that general
waiver.” 6 “[A] court must strictly observe the ‘limitations and conditions upon
which the Government consents to be sued’ and cannot imply exceptions not
present within the terms of the waiver.”7 One such exception is the intentional tort
exception, which bars:
[a]ny claim arising out of assault, battery, false imprisonment, false
arrest, malicious prosecution, abuse of process, libel, slander,
misrepresentation, deceit, or interference with contract rights . . . 8
“[A] claim will be deemed to have arisen from a § 2680 excepted tort if the
governmental conduct that is essential to the plaintiff’s cause of action is
encompassed by that tort. And this is so even if the plaintiff has denominated, as
3
Zelaya v. United States, 781 F.3d 1315, 1321 (11th Cir. 2015), cert. denied, 136 S. Ct.
168 (2015) (citation omitted).
4
Id.
5
Douglas v. United States, 814 F.3d 1268, 1280 (11th Cir. 2016) (Tjoflat, J., concurring).
6
Zelaya, 781 F.3d at 1321.
7
Id. at 1322 (quoting Soriano v. United States, 352 U.S. 270, 276 (1957)).
8
28 U.S.C. § 2680(h) (emphasis added).
6
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the basis for the cause of action, a tort not found within § 2680(h)’s list of excepted
torts.” 9
One of the excepted torts is misrepresentation. “The Supreme Court has
characterized ‘misrepresentation’ as being a breach of the ‘duty to use due care in
obtaining and communicating information upon which [another] may reasonably
be expected to rely in the conduct of his economic affairs.’” 10 “Accordingly, ‘the
essence of an action for misrepresentation, whether negligent or intentional, is the
communication of misinformation on which the recipient relies.’” 11 “The
misrepresentation exception encompasses failure to communicate as well as
miscommunication.” 12 “The test in applying the misrepresentation exception is
whether the essence of the claim involves the government’s failure to use due care
in obtaining and communicating information.”13 In determining whether the
exception applies, “it is ‘the substance of the claim and not the language used in
stating it which controls.’” 14
9
Zelaya, 781 F.3d at 1333 (citations omitted).
10
Id. at 1334 (quoting United States v. Neustadt, 366 U.S. 696, 706 (1961)).
11
Id. (quoting Block v. Neal, 460 U.S. 289, 296 (1983)); accord Block, 460 U.S. at 296
n.5 (“The ‘misrepresentation’ exception applies only when the action itself falls within the
commonly understood definition of a misrepresentation claim, which has been identified with the
common law action of deceit, and has been confined very largely to the invasion of interests of a
financial or commercial character, in the course of business dealings.” (some internal quotation
marks omitted)).
12
JBP Acquisitions, LP v. U.S. ex rel. F.D.I.C., 224 F.3d 1260, 1265 n.3 (11th Cir. 2000).
13
Id. at 1264 (citations omitted).
14
Zelaya, 781 F.3d at 1334 (citation omitted).
7
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A.
We first turn to the district court’s dismissal of Plaintiffs’ count I claim
against McLeod. Assuming McLeod is a government employee—as Plaintiffs did
in their amended complaint—Plaintiffs’ claim of negligence per se for unregistered
securities arises out of misrepresentation. As the district court correctly explained,
“had the FEBG Bond Fund been legitimate, the fact of its being unregistered
would have had no effect on plaintiffs. And conversely, if McLeod had registered
the fraudulent securities (lying about them to do so since they didn’t exist),
plaintiffs would still have suffered the same harm. Plaintiffs’ injuries flow from the
securities and McLeod’s representations which underlay them being fraudulent,
not because they were unregistered.” Said differently, even though Plaintiffs have
“denominated, as the basis for the cause of action, a tort not found within
§ 2680(h)’s list of excepted torts” McLeod’s misrepresentations are nevertheless
“the governmental conduct that is essential to the plaintiff[s’] cause of action.”15
And even if McLeod is not considered a government employee—which
Plaintiffs at times hint at throughout their briefing—then Plaintiffs cannot recover
against him under the FTCA, which allows recovery for only injuries “caused by
the negligent or wrongful act or omission of any employee of the Government[.]” 16
15
Zelaya, 781 F.3d at 1333 (citations omitted).
16
28 U.S.C. § 1346(b)(1) (emphasis added).
8
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Accordingly, Plaintiffs’ count I claim is either barred by the misrepresentation
exception or is not actionable under the FTCA.
B.
Plaintiffs’ other claims are similarly barred by the FTCA’s intentional tort
exception because they “aris[e] out of . . . misrepresentation,” 17 and, contrary to
Plaintiffs’ contention, Sheridan v. United States 18 does not save them.
1.
In Zelaya v. United States, plaintiffs were victims of Allen Stanford’s Ponzi
scheme. 19 They sued under the FTCA alleging the SEC was negligent for failing to
notify an investor protection group about the scheme. 20 This Court “examine[d]
Plaintiffs’ notification claim to determine if [it] [wa]s based on the communication
or miscommunication of information upon which others might be expected to rely
in economic matters.” 21 If it was, the Court explained, “and if a flawed
communication caused the Plaintiffs’ injury, then Plaintiffs’ claim [would] be
construed as a misrepresentation claim[.]” 22 Emphasizing that the
misrepresentation exception includes both miscommunications and non-
17
28 U.S.C. § 2680(h).
18
487 U.S. 392 (1988).
19
Zelaya, 781 F.3d at 1318.
20
Id. at 1318–20. Plaintiffs’ claim derived from the alleged violation of a statutory duty
in the Securities Investor Protection Act. See id. at 1333.
21
Id. at 1334.
22
Id.
9
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communications, 23 the Court found that plaintiffs’ claim was grounded in the
SEC’s non-communication of financial information. 24 Consequently, the
misrepresentation exception applied. 25
In reaching this outcome, the Zelaya Court sifted through the applicable case
law, separating cases in which the misrepresentation exception applied from those
in which it did not, developing guidance for future cases in the process. For
instance, failure-to-warn cases which do not involve injuries arising from
“commercial decisions based on the governments’ misrepresentations” are not
barred by the misrepresentation exception.26 Nor are cases in which the
Government’s breach of an independent “operational” duty causes the injury. 27 The
Court explained, “if a plaintiff can show that the Government has breached a duty
distinct from the duty not to make a misrepresentation and if that breach [] caused
the plaintiff’s injury, the fact that the Government may have also made a
misrepresentation will be insufficient to trigger the misrepresentation
exception[.]” 28
Plaintiffs argue that the district court read Zelaya too broadly in finding it
applied to bar their claims. They also attempt to distinguish Zelaya by claiming
23
See id.
24
Id. at 1335.
25
See id.
26
Id. at 1338.
27
Id. at 1336.
28
Id.
10
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that in that case, “[t]here was no allegation . . . that the persons who failed to notify
the [Securities Investor Protection Corporation (“SIPC”)] were not SEC employees
or were SEC employees acting outside the scope of their employment.”
The Government responds by defending Zelaya as consistent with Supreme
Court doctrine. It argues that in this case, like in Zelaya and others,
“misrepresentation is the essence of plaintiffs’ claims[.]”The Government suggests
that the alleged omissions during McLeod’s seminars, which gave Plaintiffs
“undue confidence in McLeod’s credibility,” constitute misrepresentations.
The Zelaya Court made clear that “a claim will be deemed to have arisen
from a § 2680 excepted tort if the governmental conduct that is essential to the
plaintiff’s cause of action is encompassed by that tort.”29 Plaintiffs alleged McLeod
was a government employee in their amended complaint. From this premise, it is
evident that the governmental conduct essential to Plaintiffs’ causes of action was
McLeod’s false statements about his bond fund—in other words, McLeod’s
misrepresentations.
In this case, it is of no consequence that Plaintiffs characterize the alleged
breached duties as other than misrepresentation because “a plaintiff cannot
circumvent the misrepresentation exception simply through the artful pleading of
29
Zelaya, 781 F.3d at 1333.
11
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its claims.” 30 Similarly, it does not matter that Plaintiffs alleged governmental
employees other than McLeod breached such duties. On that point, Zelaya was
clear: “if the governmental conduct that is essential to proving a plaintiff’s claim
would be covered by the misrepresentation exception, then the Government is
shielded from liability by sovereign immunity, no matter how the plaintiff may
have framed his claim or articulated his theory.” 31
In JBP Acquisitions, plaintiffs tried to escape the misrepresentation
exception by arguing “that the Government was negligent in selling it [a] loan
securing . . . Property and then continuing to act as though it had an ownership
interest in the Property by negotiating a condemnation award with [the
Metropolitan Atlanta Olympic Games Authority].” 32 The court rejected the
plaintiffs’ argument, finding that it was actually the Government’s failure to
communicate certain information to the plaintiffs and misrepresentations regarding
its ownership that constituted the basis of the negligence claims. 33 Similarly, the
basis of Plaintiffs’ claims in the present case are McLeod’s misrepresentations
about his phony bond fund.
McLeod aside, the alleged negligent conduct of the various agency
employees yet falls within the misrepresentation exception. This Court has
30
JBP Acquisitions, 224 F.3d at 1264 (citations omitted).
31
Zelaya, 781 F.3d at 1334.
32
JBP Acquisitions, 224 F.3d at 1265.
33
See id.
12
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explained that “[t]he [misrepresentation] exception covers actions for negligence
when the basis for the negligence action is an underlying claim for
misrepresentation.” 34 The alleged negligent conduct of the agency employees
stems from both their failure to stop McLeod’s solicitation (non-communications)
and their endorsement of McLeod (miscommunications). Each of the allegations in
Plaintiffs’ remaining five counts falls into one or the other. 35
In count II, Plaintiffs alleged that various agency employees aided and
abetted McLeod in violating the Florida Securities and Investor Protection Act.
But, as explained, the underlying violation is barred by the misrepresentation
exception, and in any event the alleged aiding and abetting is comprised of
governmental miscommunications that McLeod and his services were legitimate. 36
In count III, Plaintiffs allege common law negligence in that various agency
employees breached employer-based duties and the duty to act carefully by
negligently failing to follow a bevy of policies, provisions, and regulations.37 They
34
Id. at 1264 (citations omitted).
35
Plaintiffs must also demonstrate a state-law analogue for each of their claims. Zelaya,
781 F.3d at 1324 (“[T]he fact that a federal employee has failed to perform duties imposed by
federal law is insufficient by itself to render the federal government liable under the FTCA.
Instead, a state tort cause of action is a sine qua non of FTCA jurisdiction, and we have
dismissed FTCA suits that have pleaded breaches of federal duties without identifying a valid
state tort cause of action.” (citations omitted)). However, like the district court, we need not
decide this issue since we can affirm the dismissal for other reasons.
36
For example, according to Plaintiffs, agency employees aided and abetted by
scheduling private meetings with McLeod. Underlying this conduct is a claim of
misrepresentation against the Government for endorsing McLeod and his services.
37
For instance, an Office of Personnel Management (“OPM”) policy prohibits
commercial solicitation, as does a General Services Administration (“GSA”) regulation.
13
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additionally make claims of negligent failure to vet, investigate, and supervise
McLeod. Yet, the basis for each of the alleged breached duties is in fact the
Government’s failure to communicate information about McLeod, as well as their
miscommunications in endorsing McLeod. Moreover, several of the claims
necessarily depend on finding that the Government breached its duty to use due
care in “communicating information upon which [Plaintiffs] may reasonably be
expected to rely in the conduct of [their] economic affairs.’” 38
The essence of misrepresentation “whether negligent or intentional, is the
communication of misinformation on which the recipient relies.’” 39 The Ninth
Circuit has described that “[t]he key distinction in this area is between the
performance of operational tasks and the communication of information.”40
Although some claims will implicate both,41 the “essence of the complaint” here is
the Government’s miscommunicating McLeod’s legitimacy. 42 Said differently, the
Government’s communication of misinformation here was far more than
“collateral.”43
In count IV, Plaintiffs alleged breach of fiduciary duty by improperly
soliciting, promoting, failing to follow ethics laws, and failing to properly vet
38
United States v. Neustadt, 366 U.S. 696, 706 (1961).
39
Zelaya, 781 F.3d at 1334 (quoting Block, 460 U.S. at 296).
40
Guild v. United States, 685 F.2d 324, 325 (9th Cir. 1982).
41
See, e.g., Block, 460 U.S. at 297–98.
42
Guild, 685 F.2d at 326.
43
Id.
14
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McLeod and the FEBG. Soliciting and promoting are plainly acts of
communication that fall within the misrepresentation exception. And although
violating ethics rules and failing to vet offer an accurate description of the
Government’s conduct, it is not complete. 44 The Supreme Court instructed that we
look to the “essence” of the claim to reach its footing.45 Here, the essence “is the
communication of misinformation on which [Plaintiffs] relie[d].” 46 The same is
true for Plaintiffs’ count V allegations of negligent supervision. Alleging the
breached duty to be a failure to “supervise, direct and control,” Plaintiffs strive but
fail to circumvent the misrepresentation bar. 47 Finally, in count VI, Plaintiffs
alleged negligent infliction of emotional distress (“NIED”), which “requires an
adequately pled underlying claim of negligence.”48 Because any underlying
negligence claims are covered by the misrepresentation exception, Plaintiffs’
NIED claim is also barred. In short, like in Zelaya, “because Plaintiffs’ claim[s]
[are] focused on non-communication [and miscommunication] of financial
information” by the various agency employees, “the misrepresentation exception
44
Guild, 685 F.2d at 326 (key issue was “the correct characterization of the
Government's conduct”).
45
See Block, 460 U.S. at 296–97.
46
Id. at 296.
47
See Metz v. United States, 788 F.2d 1528, 1534 (11th Cir. 1986) (“[A] cause of action
which is distinct from one of those excepted under § 2680(h) will nevertheless be deemed to
‘arise out of’ an excepted cause of action when the underlying governmental conduct which
constitutes an excepted cause of action is ‘essential’ to plaintiff's claim.” (citation omitted)).
48
Chaparro v. Carnival Corp., 693 F.3d 1333, 1337 (11th Cir. 2012) (per curiam).
15
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springs into action to prevent a waiver of the Government’s sovereign
immunity.” 49
Then there is the requirement of causation. To escape the misrepresentation
exception in cases like this, Zelaya requires Plaintiffs not only to “show that the
Government has breached a duty distinct from the duty not to make a
misrepresentation” but also, critically, that “that breach . . . caused the plaintiff’s
injury.” 50 In coming to that conclusion, the Zelaya decision relied on the Supreme
Court’s Block v. Neal decision, which said that the misrepresentation exception
“relieves the Government of tort liability for pecuniary injuries which are wholly
attributable to reliance on the Government’s negligent misstatements. . . . But it
does not bar negligence actions which focus not on the Government’s failure to use
due care in communicating information, but rather on the Government’s breach of
a different duty.” 51
Plaintiffs cannot make the required showings in this case. Their injuries are
“wholly attributable to reliance on” misrepresentations. 52 In Zelaya, “[t]he injury
Plaintiffs suffered . . . was the loss of their investment money, which is an
economic injury arising from a commercial decision that Plaintiffs may not have
49
Zelaya, 781 F.3d at 1335.
50
Id. at 1336.
51
Block, 460 U.S. at 297; see Zelaya, 781 F.3d at 1335–36.
52
Block, 460 U.S. at 297.
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made had the SEC notified SIPC of Stanford Group’s financial frailty.” 53 The
injury Plaintiffs suffered in this case was also the loss of their investment money,
“which is an economic injury arising from a commercial decision that Plaintiffs
may not have made had” McLeod not peddled his fraudulent fund, and had agency
employees not communicated McLeod’s legitimacy. Plaintiffs emphasize that an
injury can have more than one cause.54 While correct as far as it goes, we must also
determine whether the misrepresentation was central to the claim and injury. 55 In
JBP Acquisitions, for instance, the Court determined that misrepresentations about
the ownership of the loan are what made the Government’s conduct negligent in
the first place, and that without the misrepresentation, there would have been no
injury. 56 The misrepresentation in JM Mechanical Corporation, on the other hand,
was “[a] subsequent and collateral misrepresentation that merely aggravated the
injury” which did “not suffice to invoke the misrepresentation exception.” 57 Here,
McLeod and the agency employees’ misrepresentations are what made the
53
Zelaya, 781 F.3d at 1338.
54
For support, Plaintiffs cite to Justice Kennedy’s non-binding concurrence in the
judgment in Sheridan.
55
See JBP Acquisitions, 224 F.3d at 1265.
56
See id.
57
Zelaya, 781 F.3d at 1336 (summarizing JM Mechanical Corp. v. United States, 716
F.2d 190, 191–95 (3d Cir. 1983)).
17
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Government’s conduct negligent and such misrepresentations were the primary
cause of injury. 58
2.
Plaintiffs’ primary argument on appeal is that Sheridan v. United States
offers their claims passage through the intentional tort gate.59 In Sheridan, an
intoxicated off-duty servicemember injured plaintiffs by shooting a rifle into their
car. 60 Before doing so, three naval corpsmen had encountered the drunk
serviceman inside a hospital. 61 “They attempted to take him to the emergency
room, but he broke away . . . revealing the barrel of [a] rifle. At the sight of the
rifle barrel, the corpsmen fled. They neither took further action to subdue [him],
nor alerted the appropriate authorities[.]” 62 The plaintiffs sued the United States,
“alleging that their injuries were caused by the Government’s negligence in
58
Plaintiffs point out that there are three Plaintiffs who “did not invest in the FEBG Bond
Fund, but did hire McLeod to manage their retirement savings after attending an agency-
sponsored retirement seminar. These three plaintiffs allege McLeod negligently managed their
money.” According to Plaintiffs, these three Plaintiffs did not rely on McLeod’s
misrepresentations about the Bond Fund. Nonetheless, they relied on McLeod’s
misrepresentations about his, and his business’s, legitimacy. For example, as Plaintiffs explain in
their amended complaint, “[a]lthough McLeod held himself out as an expert on the federal
retirement system, he was, in reality, not capable of handling his own finances and retirement
planning . . . McLeod claimed he held a masters degree in finance . . when in reality, McLeod
never graduated from college.” The misrepresentation exception applies.
59
The Government contends that Plaintiffs waived their Sheridan-based argument.
Although this contention has some force, see Gennusa v. Canova, 748 F.3d 1103, 1116 (11th
Cir. 2014); In re Pan Am. World Airways, Inc., Maternity Leave Practices & Flight Attendant
Weight Program Litig., 905 F.2d 1457, 1462 (11th Cir. 1990), we decline to reach it, because
even if the argument is preserved, it fails.
60
Sheridan, 487 U.S. at 393–94.
61
See id. at 395.
62
Id.
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allowing [the serviceman] to leave the hospital with a loaded rifle in his
possession.”63 The Supreme Court considered “whether petitioners’ claim [was]
one ‘arising out of’ an assault or battery within the meaning of 28 U.S.C.
§ 2680(h).”64
In a two-part analysis, the Court held that the claim was not barred by the
intentional tort exception. In the first part of its analysis, the Court considered a
“claim arising out of two tortious acts, one of which is an [intentional tort] and the
other of which is a mere act of negligence.” 65 The Court acknowledged that “in at
least some situations the fact that an injury was directly caused by an [intentional
tort] will not preclude liability against the Government for negligently allowing the
[intentional tort] to occur.”66
The Court recognized two theories. The first is that a claim does not arise
“solely” or “predominantly” out of the intentional tort when there is an allegation
of independent, antecedent negligence against the Government. 67 “Under this view,
the assailant’s individual involvement would not give rise to Government liability,
63
Id. at 394.
64
Id. (footnote omitted).
65
Id. at 398; accord id. at 404 (Kennedy, J., concurring in the judgment) (“The question
before us is how to interpret the intentional tort exception in the Federal Tort Claims Act . . .
when a plaintiff’s injury is caused both by an intentional tort and by negligence that precedes
it.”).
66
Id. at 398 (majority opinion) (emphasis added).
67
Id. at 399.
19
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but antecedent negligence by Government agents could[.]” 68 But the Supreme
Court expressly declined to rely on this theory. 69
The second theory—and the one relied on by the Court—is that “the
intentional tort exception is simply inapplicable to torts that fall outside the scope
of § 1346(b)’s general waiver.”70 The Court cited favorably to Justice (then Judge)
Harlan’s reasoning in Panella v. United States,71 which concluded that the
intentional tort exception “must be read against the rest of the Act.”72 Accordingly,
“[t]he exception should . . . be construed to apply only to claims that would
otherwise be authorized by the basic waiver of sovereign immunity.” 73 Since the
FTCA’s basic waiver only authorizes claims for injuries caused by government
employees acting in the scope of their employment, 74 an intentional tort by a non-
government employee, or a government employee acting outside the scope of
employment, could not furnish the basis of an FTCA claim. 75 Applied to Sheridan,
if the claim only involved the off-duty intoxicated servicemember—i.e., a
government employee acting outside the scope of employment—plaintiffs would
68
Id.
69
Id. at 400.
70
Id.
71
216 F.2d 622 (2d Cir. 1954).
72
Sheridan, 487 U.S. at 400.
73
Id.
74
28 U.S.C. § 1346(b)(1) (allowing claims for money damages against the United States
“for injury or loss of property, or personal injury or death caused by the negligent or wrongful
act or omission of any employee of the Government while acting within the scope of his office or
employment . . .”).
75
See Sheridan, 487 U.S. at 400.
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have had no basis for suing the Government under the FTCA. 76 Without a viable
FTCA claim, the FTCA’s intentional tort exception would be inapplicable.77
Turning to the first of these two theories, McLeod, who committed the
intentional tort of misrepresentation, is akin to the servicemember, who committed
the intentional tort of assault. Under the first theory, “[McLeod’s] individual
involvement would not give rise to Government liability, but antecedent
negligence by Government agents could[.]” 78 However, this Circuit has not
adopted this theory, and we have been given no good reason to do so today.
Plaintiffs’ negligence claims against agency defendants therefore cannot proceed
under the first theory.
Nor can they under the second. The Sheridan Court explained that “[b]y
voluntarily adopting [firearm] regulations . . . and by further voluntarily
undertaking to provide care to a person who was visibly drunk and visibly armed,
the Government assumed responsibility to ‘perform [its] “good Samaritan” task in
76
See id. at 401 (“If nothing more was involved here than the conduct of Carr at the time
he shot at petitioners, there would be no basis for imposing liability on the Government. The
tortious conduct of an off-duty serviceman, not acting within the scope of his office or
employment, does not in itself give rise to Government liability whether that conduct is
intentional or merely negligent.”).
77
Cf. at 400 (“Since an assault by a person who was not employed by the Government
could not provide the basis for a claim under the FTCA, the exception could not apply to such an
assault; rather, the exception only applies in cases arising out of assaults by federal employees.”).
78
Id. at 399.
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a careful manner.’” 79 The status of the intoxicated servicemember tortfeasor was
irrelevant to this duty. The Court pointed out that the plaintiffs’ allegations
included those against “other Government employees who allowed a foreseeable
assault and battery to occur,” which “may furnish a basis for Government liability
that is entirely independent of [the servicemember’s] employment status.” 80 The
Court concluded, “in a case in which the employment status of the assailant has
nothing to do with the basis for imposing liability on the Government, it would
seem perverse to exonerate the Government because of the happenstance that [the
servicemember] was on a federal payroll.”81 The plaintiffs thus avoided the
intentional tort bar because the Government’s alleged negligence had nothing to do
with the intoxicated servicemember’s employment status. In this case, however,
the Government’s alleged negligence was closely connected to McLeod’s
employment status. Indeed, McLeod’s presentments under the auspices of the
Government were fundamental.
Plaintiffs urge that the agency employees who vouched for McLeod and
failed to stop his solicitations are akin to the Navy corpsman in Sheridan who
failed to stop the servicemember’s assault. Just as the Navy corpsman undertook an
79
Sheridan, 487 U.S. at 401 (footnote and citation omitted). Of note, “[t]he District Court
and the Court of Appeals both assumed that petitioners’ version of the facts would support
recovery under Maryland law on a negligence theory if the naval hospital had been owned and
operated by a private person.” Id.
80
Id.
81
Id. at 402 (footnote omitted).
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independent duty of care to protect people from a possible assault, Plaintiffs
suggest the agency employees here had an independent duty to protect employees
from impermissible solicitations and commercial activity. The Government
contends that “McLeod’s relationship with the government is at the heart of this
case.” It asserts that “Plaintiffs’ theory of liability turns on the fact that the
government contracted with McLeod’s employer and that his appearance at
government-arranged seminars gave plaintiffs undue confidence in McLeod’s
credibility.”
As an initial matter, Plaintiffs’ negligent supervision claims are “rooted in
supervisor-supervisee relationships at work,” 82 and thus closely related to
McLeod’s employment status. All of Plaintiffs’ other claims—no matter how
framed—are similarly connected to McLeod’s employment status as a
governmental employee hired to help discharge the Government’s duty to provide
retirement assistance to its employees. Plaintiffs’ insistence that the Government
had antecedent, independent duties unrelated to McLeod’s employment
relationship is incorrect.
Ultimately, since Plaintiffs’ claims arise out of McLeod’s misrepresentations
about his bond fund, 28 U.S.C. § 2680(h) bars Plaintiffs’ claims. Sheridan does not
82
CNA v. United States 535 F.3d 132, 149 (3d Cir. 2008). According to the Third Circuit,
the Sheridan Court recognized “that negligent supervision claims are not covered by the
independent negligence theory[.]” Id. at 149 n.10 (citations omitted).
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alter the outcome because, unlike in that case, the Government’s liability was not
independent of McLeod’s employment status.
III.
Congress has delineated the Government’s liability via the FTCA and its
attendant exceptions. Concluding that the misrepresentation exception applies to
bar Plaintiffs’ claims, we AFFIRM.
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ROSENBAUM, Circuit Judge, concurring specially:
In Oliver Twist, Mr. Bumble famously lamented, “If the law supposes that,
the law is a ass—a idiot.”1 Every once in a while, a case comes along where some
might find Mr. Bumble’s philosophy of the law apt. This is one of those cases.
Here, more than 100 federal law-enforcement-agency employees and their
family members were swindled out of millions and millions of dollars in their
retirement savings by Kenneth Wayne McLeod—a man these plaintiffs’ agencies
brought onto federal property for the express purpose of, ironically, financially
educating agency employees. Because the agencies allegedly did not follow rules
prohibiting speakers from soliciting federal employees and from dispensing
personal financial advice, among other safeguards, McLeod was able to abuse his
position and take advantage of the federal employees’ trust in their agencies. Now,
troublingly, the plaintiffs have no recourse because sovereign immunity precludes
suit against the government in these circumstances.
I agree that the panel correctly reaches this same conclusion. But I write
separately in an effort to prevent the harsh exception to the Federal Tort Claims
Act’s (“FTCA”) waiver of sovereign immunity from being construed in the future
any more broadly than it has been written and that the Supreme Court has
interpreted it. In particular, I respectfully disagree with the panel opinion’s
1
Charles Dickens, Oliver Twist, https://www.planetebook.com/ebooks/Oliver-Twist.pdf,
at 617 (last visited July 6, 2017).
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understanding of Sheridan v. United States, 487 U.S. 392 (1988), and with dicta
from our decision in Zelaya v. United States, 781 F.3d 1315 (11th Cir. 2015).
I.
As I have noted, I agree that the panel correctly concluded that the FTCA’s
waiver of sovereign immunity does not apply here. As relevant in this case, the
FTCA’s exception from its waiver of sovereign immunity bars any claim “[a]rising
out of . . . misrepresentation, deceit, or interference with contract rights.” 28
U.S.C. § 2680(h). Significantly, this language includes claims arising out of not
only intentional misrepresentation but also negligent misrepresentation. See
United States v. Neustadt, 366 U.S. 696, 710 (1961).
When we consider whether this exception applies, we must identify the true
“essence” of the plaintiff’s claim, regardless of how the plaintiff may have pled her
cause. JBP Acquisitions, LP v. United States ex rel. FDIC, 224 F.3d 1260, 1264
(11th Cir. 2000) (citation omitted). We have explained that the “essence” of
negligent misrepresentation “involves the government’s failure to use due care in
obtaining and communicating information.” Id. (citing Block v. Neal, 460 U.S.
289, 296 (1983); Neustadt, 366 U.S. at 706-07). And, more specifically, a claim is
for negligent misrepresentation “when the loss suffered by the injured party is
caused by the breach of . . . the duty to use due care in obtaining and
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communicating information upon which that party may reasonably be expected to
rely in the conduct of his economic affairs.” Neustadt, 366 U.S. at 706.
Here, all of the plaintiffs’ claims are, at their essence, either claims of
intentional misrepresentation or claims of negligent misrepresentation. To the
extent that the complaint asserts claims against McLeod, these claims rely, at
bottom, on the fact that McLeod defrauded them through material
misrepresentations and omissions about what he was doing with their money.
And to the extent that the complaint makes claims against government
employees for their independent negligence in vetting and investigating McLeod,
in allowing him to solicit employees and offer personal financial investment
advice, and in otherwise failing to follow regulations and government policy in
permitting McLeod to speak at official agency-sponsored events and on federal
property, all of these claims sound in negligent misrepresentation. This is
necessarily so because even setting aside McLeod’s intentional misrepresentations,
all of plaintiffs’ losses may be traced to the government’s alleged “breach of . . .
the duty to use due care in obtaining and communicating [financial-literacy]
information upon which [the plaintiffs] . . . reasonably [could have been] expected
to rely in the conduct of [their] economic affairs,” id.; that is, to the government’s
own negligent misrepresentations.
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Indeed, the entire purpose of the government’s financial-literacy program
was to financially educate federal employees in the hope that they would rely on
the information and increase their retirement savings. See 5 U.S.C. § 8350 note on
Pub. L. 108-469, § 2, 118 Stat. 3892 (2004).2 Had the government followed its
own policies and regulations that were put in place to ensure the use of due care in
communicating financial-literacy information, McLeod either would not have been
permitted to speak or, at the very least, would not have been allowed to solicit
employees and offer them personal financial investment advice, regardless of the
content of that advice. Either way, the plaintiffs would not have been defrauded by
McLeod.
So all of plaintiffs’ claims are, at their essence, claims for either intentional
or negligent misrepresentation. As a result, § 2680(h), by its terms, precludes them
all.
II.
2
This note provides, in relevant part,
(c) Strategy.—As part of the retirement training offered by Office
of Personnel Management under . . . [this section], the Office, in
consultation with the Board, shall—
(1) Not later than 6 months after . . . [December 21, 2004],
develop and implement a retirement financial literacy and
education strategy for Federal employees that—
(A) shall educate Federal employees on the need for
retirement savings and investment; and
(B) provide information related to how Federal employees
can receive additional information on how to plan for
retirement and calculated what their retirement investment
should be in order to meet their retirement goals . . . .
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For this same reason, this case is also distinguishable from Sheridan. There,
as the panel correctly notes, an obviously drunken off-duty serviceman fired
several shots at the plaintiffs after government employees allowed him to leave a
naval hospital with a loaded rifle in his possession. The plaintiffs sued the
government for the employees’ negligence in allowing the serviceman to leave the
hospital without reporting the situation.
Section 2680(h) excepts assault and battery from the FTCA’s waiver of
sovereign immunity, but it does not except negligence. So, like McLeod’s
intentional misrepresentations here, the assailant’s tort in Sheridan would have
been excluded from the FTCA’s waiver, even had the assailant been acting in the
scope of his government employment.
But notably, unlike misrepresentation, assault and battery has no negligent
counterpart. And the government employees who let the drunken, armed assailant
go without trying to stop him and without reporting the incident engaged in a
separate act of negligence, not assault and battery or any other tort that § 2680(h)
excepts. So unlike the acts of the government employees here who engaged in the
excepted tort of negligent misrepresentation independent of McLeod’s intentional
misrepresentations, the acts of the government employees in Sheridan were not
protected by sovereign immunity under the terms of § 2860(h). See Sheridan, 487
U.S. at 401.
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This is where I would end my discussion of this case and of Sheridan:
unlike in Sheridan, the essence of the government employees’ acts in this case
constituted an excepted tort under § 2680(h)—that of negligent misrepresentation.
As a result, the FTCA bars recovery here.
But the panel’s interpretation of Sheridan goes further. And I am concerned
that some of what the panel says about Sheridan could be broadly construed to
impose limitations that Sheridan did not on the FTCA’s waiver of sovereign
immunity. For that reason, I think it important to address two points in the panel’s
Sheridan discussion.
First, I am concerned that the panel’s interpretation of Sheridan may be read
to mistakenly suggest that Sheridan’s rule allowing claims against government
employees for non-excepted torts applies only when the excepted tortfeasor (in the
position of the drunken serviceman in Sheridan or McLeod here) did not act within
the scope of government employment. And that would be in direct conflict with
what Sheridan actually says.
In fact, the government-employee status of the excepted tortfeasor (in the
position of the drunken serviceman in Sheridan or McLeod here) makes no
difference to whether Sheridan’s rule applies. The Supreme Court expressly said
so: “[the assailant serviceman’s] employment status is irrelevant to the outcome”
of the case. Sheridan, 487 U.S. at 403 n.8; see also id. (“Because . . . [the assailant
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serviceman’s] employment status . . . has [no] bearing on the basis for petitioners’
claim for money damages, [§ 2680(h)] is not applicable in this case.”). Rather, in
and of itself, the excepted tort (that directly inflicts the injuries)—regardless of
whether a government employee acting within the scope of his duties committed
it—does not preclude liability against the government for conduct that is “entirely
independent” of the tortfeasor’s employment status. Id. at 401.
So even accepting the complaint’s allegations that McLeod was a
government employee and that he acted within the scope of his employment,
McLeod’s employment status, in and of itself, does not provide a basis under
Sheridan for rejecting plaintiffs’ claims based on other government employees’
alleged breaches of a separate duty to follow government regulations and policy.
Instead, plaintiffs’ claims cannot succeed because the independent legal foundation
of those claims against the responsible government agencies finds its basis in
negligent misrepresentation, which is itself an excepted tort—without reference to
McLeod’s intentional tort of intentional misrepresentation.
Second, the panel opinion describes the two theories that the Supreme Court
discussed in Sheridan to explain how liability might be imposed against
government employees who negligently allowed an intentional tortfeasor to
commit his tort. See Op. at 22-23. As the panel correctly notes, the Supreme
Court relied exclusively on the second theory.
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Nonetheless, the panel alternatively analyzes this case under the first
Sheridan theory. It notes that “McLeod, who committed the intentional tort of
misrepresentation, is akin to the servicemember, who committed the intentional
tort of assault. Under the first theory, [McLeod’s] individual involvement would
not give rise to Government liability, but antecedent negligence by Government
agents could[.]” Id. at 22. (quoting Sheridan, 487 U.S. at 399). Ultimately,
though, the panel rejects liability here because “this Circuit has not adopted this
theory, and we have been given no good reason to do so today.” Id.
In my view, we need not reach this consideration. Even if Sheridan’s first
theory were binding law, it simply would not apply here. As I have noted, the
government employees here (other than McLeod) allegedly engaged in negligent
misrepresentation, which is an excepted tort, regardless of whether Sheridan’s first
theory is valid. For that reason alone, the government employees’ antecedent
negligence at issue here could not give rise to government liability under the
FTCA, and Sheridan’s first theory cannot help plaintiffs.
III.
The panel opinion also invokes our decision in Zelaya in its discussion of
causation. See Op. at 17. And while Zelaya certainly contains some valid and
important points, I think no discussion of Zelaya’s causation analysis is complete
without a word of caution about that opinion. Zelaya states, “The phrase ‘arising
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out of’ [in § 2680(h)] is interpreted broadly to include all injuries that are
dependent upon one of the listed torts having been committed.” 781 F.3d at 1333
(citing United States v. Shearer, 473 U.S. 52, 55 (1985)). But, in my view, this
statement of the law and the citation on which Zelaya bases it, are not good law for
two reasons.
First, Zelaya relies solely on Shearer for that proposition. But Shearer’s
entire discussion of § 2680(h)’s exceptions to the FTCA’s waiver of sovereign
immunity appears in Section II-A of the opinion—a part of the opinion that the
majority did not adopt. See id. at 54-57. Instead, the Supreme Court’s decision in
Shearer was based solely on the Feres doctrine,3 which precludes a soldier from
recovering under the FTCA “for injuries which ‘arise out of or are in the course of
activity incident to service.’” See Shearer, 473 U.S. at 57-59. That doctrine, of
course, has no application here.
And more significantly, the Court’s holding in Sheridan necessarily rejected
the Shearer plurality’s analysis of the “arising out of” language in § 2680(h). In
Shearer, an Army private’s mother sued the Army for negligence because another
serviceman kidnapped and murdered her son. She alleged that the Army knew that
the other serviceman was dangerous, yet it failed to control him and to warn others
that he was at large. In finding her claim barred, the plurality effectively
3
Feres v. United States, 340 U.S. 135 (1950).
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concluded that where a plaintiff’s damages “stem from” an excepted tort under §
2680(h), an action based on a non-excepted tort “aris[es] out of” the excepted tort
and likewise is prohibited. See id. at 55.
But Sheridan held that § 2680(h) did not preclude the plaintiffs’ claims
there, even though all their injuries were dependent on the drunken serviceman’s
assault and battery—an excepted tort. Had the Shearer plurality’s reasoning ruled
the day, Sheridan could not have reached this conclusion: though the plaintiffs
alleged an independent cause of action for negligence against the government, the
Shearer plurality would have concluded that their actual injuries “ar[ose] out of”
the drunken serviceman’s assault and battery and were thus barred. So it is clear
that any suggestion that § 2680(h) bars all claims for which the injuries arose
directly out of an excepted tort is overly broad, incorrect, and inconsistent with the
governing law of Sheridan.
Fortunately, however, Zelaya’s suggestion in this regard is dicta, as our
holding in Zelaya was actually based on the fact that all the plaintiffs’ claims there
were, at their essence, claims for the excepted tort of misrepresentation. In light of
the panel’s reliance on other aspects of Zelaya, I note this error in that opinion to
prevent our opinion here from being viewed as endorsing all that Zelaya had to
say.
IV.
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The outcome in this case is troubling. Yet it is one that the law clearly
requires. Nevertheless, I would limit any restraints this opinion could impose on
future litigants by confining it to address only what is absolutely necessary. Here,
that means holding only that § 2680(h) precludes plaintiffs’ claims because all of
them are based on the excepted torts of either intentional misrepresentation or
negligent misrepresentation.
35