Dichter-Mad Family Partners, Llp v. United States of America

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE 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
ORDER AND
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
Filed February 12, 2013
Before: Stephen Reinhardt, Kim McLane Wardlaw,
and Richard A. Paez, Circuit Judges.
Order;
Per Curiam Opinion

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DICHTER-MAD FAMILY PARTNERS V. UNITED STATES 2
This summary constitutes no part of the opinion of the court. It has *
been prepared by court staff for the convenience of the reader.
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.

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DICHTER-MAD FAMILY PARTNERS V. UNITED STATES 3
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.
ORDER
The opinion and appendix filed on January 28, 2013 are
withdrawn. A new opinion and appendix are filed
concurrently with this order.
IT IS SO ORDERED.
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.

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DICHTER-MAD FAMILY PARTNERS V. UNITED STATES 4
The duties alleged in the Second Amended Complaint are taken from 1
the SEC Enforcement Manual, which the district court ordered the
government to produce.
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 the1
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 mandatory
directives 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

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DICHTER-MAD FAMILY PARTNERS V. UNITED STATES 5
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 reasoned
finding that the plaintiffs failed to meet this burden was a
proper exercise of its discretion. See Hallett, 296 F.3d at 751.
AFFIRMED.

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DICHTER-MAD FAMILY PARTNERS V. UNITED STATES 6
APPENDIX

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1016 707 FEDERAL SUPPLEMENT, 2d SERIES
IT IS HEREBY ORDERED that Peti-
tioner Clifton Brown’s motion under 18
U.S.C. § 2255 will be GRANTED and he
will be GRANTED an out-of-time appeal
as the remedy for Counsel’s failure to file
an appeal.
IT IS FURTHER ORDERED that the
Court will VACATE Petitioner Clifton
Brown’s July 3, 2008 dated Amended
Judgment (Doc. No. 115 in Case No.
1:06CR99RWS) and REIMPOSE the
same sentence so the time for appeal can
start to run again. See Rosinski v. United
States, 459 F.2d 59 (6th Cir.1972); United
States v. Phillips, 225 F.3d 1198, 1201
(11th Cir.2000). The Court WILL EN-
TER a Second Amended Judgment.
IT IS FURTHER ORDERED that the
Clerk of the Court is ordered to prepare a
Second Amended Judgment in the matter
United States of America v. Clifton
Brown, No. 1:06CR99RWS in accordance
with this order.
IT IS FURTHER ORDERED that Pe-
titioner Clifton Brown has the right to
appeal the reimposed sentence. The Clerk
of the Court shall file a notice of appeal for
him within fourteen days from the entry
of the Second Amended Judgment. If
Brown cannot afford counsel to represent
him on appeal, he should complete the in
forma pauperis application which the
Clerk will provide him, and file it, along
with a motion requesting the Court to
appoint counsel to represent him.
IT IS FURTHER ORDERED that the
Clerk of the Court shall mail a copy of this
Memorandum and the accompanying judg-
ment, the Second Amended Judgment, and
the in forma pauperis affidavit (CJA 23)
to Petitioner Clifton Brown at Clifton
Brown, # 33172–044, F.C.I. Greenville,
P.O. Box 5000, Greenville, IL 62246.
,
DICHTER–MAD FAMILY PARTNERS,
LLP; Philip Dichter; Claudia Gvirtz-
man Dichter; and Richard H. Gordon,
Plaintiffs,
v.
UNITED STATES of America; Secu-
rities Exchange Commission, and
Does 1–10, Defendants.
No. CV 09–9061 SVW (FMOx).
United States District Court,
C.D. California.
April 20, 2010.
Background: Investors in Ponzi scheme
brought a Federal Tort Claims Act
(FTCA) action against the Securities and
Exchange Commission (SEC) and the
United States, claiming SEC’s negligent
acts and omissions caused scheme to con-
tinue, perpetuate, and expand, and that the
SEC failed to terminate Ponzi scheme de-
spite its multiple opportunities to do so.
Defendants filed motions to dismiss.
Holding: The District Court, Stephen V.
Wilson, J., held that discretionary function
exception barred investors’ claims against
government based on SEC investigators’
failure to discover Ponzi scheme and publi-
cize or prosecute it.
Motions granted.
1. United States O78(12)
Under discretionary function excep-
tion to Federal Tort Claims Act (FTCA),
officers are only liable if (1) the officers’
actions were prescribed by statute, regula-
tion, or policy, or (2) the officers’ conduct
was not susceptible to analysis on social,
economic, or political policy grounds. 28
U.S.C.A. § 2680(a).
2. Federal Civil Procedure O1832
Because Securities and Exchange
Commission’s (SEC) Office of Inspector

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1017 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
General’s report on agency’s failure to un-
cover Ponzi scheme was both attached to
and incorporated-by-reference into com-
plaint, it was properly considered on mo-
tion to dismiss investors’ Federal Tort
Claims Act (FTCA) action against SEC for
failing to terminate Ponzi scheme despite
multiple opportunities to do so. 28
U.S.C.A. § 2674 et seq.; Fed.Rules Civ.
Proc.Rule 10(c), 28 U.S.C.A.
3. United States O78(1)
A federal agency cannot itself be sued
under Federal Tort Claims Act (FTCA);
FTCA only allows claims against the Unit-
ed States. 28 U.S.C.A. § 2671.
4. Federal Civil Procedure O1772
A claim has facial plausibility when
the plaintiff pleads factual content that
allows the court to draw the reasonable
inference that the defendant is liable for
the misconduct alleged; a complaint that
offers mere labels and conclusions or a
formulaic recitation of the elements of a
cause of action will not do. Fed.Rules
Civ.Proc.Rule 8(a), 28 U.S.C.A.
5. United States O78(12)
When established governmental poli-
cy, as expressed or implied by statute,
regulation, or agency guidelines, allows a
government agent to exercise discretion, it
must be presumed, for purposes of discre-
tionary function exception to Federal Tort
Claims Act (FTCA), that the agent’s acts
are grounded in policy when exercising
that discretion; in contrast, if the applica-
ble statute or regulation does not give the
employee discretion, no presumption at-
taches, and the court must determine
whether the decisions were of the kind
that are susceptible to policy analysis. 28
U.S.C.A. § 2680(a).
6. United States O141(3)
United States bears the burden of
proving the applicability of discretionary
function exception to Federal Tort Claims
Act (FTCA); government must prove that
each of the allegedly wrongful acts, by
each allegedly negligent actor, is covered
by the discretionary function exception.
28 U.S.C.A. § 2680(a).
7. United States O78(12)
Discretionary function exception to
Federal Tort Claims Act (FTCA) barred
investors’ claims against government
based on Securities and Exchange Com-
mission’s (SEC) investigators’ failure to
discover Ponzi scheme and publicize or
prosecute it; SEC’s decisions of whether
and how to conduct investigations and en-
forcement actions were discretionary, and
investors’ conclusory allegations failed to
establish that SEC examiners were guided
by any mandatory duties requiring them to
share information and coordinate their ac-
tivities. Securities Exchange Act of 1934,
§ 21(a)(1), (d)(1), 15 U.S.C.A. § 78u(a)(1),
(d)(1); 28 U.S.C.A. § 2680(a); 17 C.F.R.
§ 202.5.
8. United States O78(12)
Employment, supervision, and train-
ing decisions fall squarely within the dis-
cretionary function exception to Federal
Tort Claims Act (FTCA). 28 U.S.C.A.
§ 2680(a).
9. Federal Civil Procedure O1275.5
Federal Courts O33
Where pertinent facts bearing on the
question of subject matter jurisdiction are
in dispute, discovery should be allowed;
however, a court’s refusal to allow further
discovery before dismissing on jurisdic-
tional grounds is not an abuse of discretion
when it is clear that further discovery
would not demonstrate facts sufficient to
constitute a basis for jurisdiction.
10. Federal Civil Procedure O1275.5
Federal Courts O33
Additional discovery was not warrant-
ed prior to dismissal of Federal Tort

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1018 707 FEDERAL SUPPLEMENT, 2d SERIES
Claims Act (FTCA) claim for lack of sub-
ject matter jurisdiction where plaintiffs
failed to articulate a discrete discovery
request that might cure the jurisdictional
deficiency and failed to otherwise specify
where they might discover the necessary
factual predicate for subject matter juris-
diction. 28 U.S.C.A. § 2680(a).
11. Federal Civil Procedure O852.1
When an amended complaint is filed,
the previous complaint is rendered null
and void, and only the amended complaint
remains legally operable; a plaintiff waives
all causes of action alleged in the original
complaint which are not alleged in the
amended complaint.
Philip J. Dichter, Philip J. Dichter Law
Offices, Malibu, CA, for Plaintiffs.
Richard M. Gordon, Beverly Hills, CA,
pro se.
Jeffrey Paul Ehrlich, United States De-
partment of Justice, Washington, DC, for
Defendants.
ORDER GRANTING DEFENDANTS’
MOTIONS TO DISMISS FOR LACK
OF JURISDICTION [6, 7]
STEPHEN V. WILSON, District Judge.
I. INTRODUCTION
A. BACKGROUND
Plaintiffs were investors in Bernard Ma-
doff’s Ponzi scheme.1 Plaintiffs are bring-
ing a Federal Tort Claims Act (‘‘FTCA’’)
action against 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 foresee-
ably endangered by its conduct.’’ (Compl.
¶ 163.) Plaintiffs also assert that the
SEC’s negligent acts and omissions
‘‘caused Madoff’s scheme to continue, per-
petuate, 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 victim-
ized by Madoff. Plaintiffs made their in-
vestments in reliance on Madoff’s reputa-
tion, 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.
[1] 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. Un-
der 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 suscep-
tible to analysis on social, economic, or
1. The plaintiffs are:
–Dichter–Mad Family Partners, LLP (a
Florida partnership represented by attorney
Philip Dichter, an investor in the partner-
ship),
-Philip Dichter (who is a lawyer represent-
ing himself),
-Claudia Gvirtzman Dichter (represented by
Philip Dichter), and
-Richard M. Gordon (who is a lawyer repre-
senting himself).

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1019 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
political policy grounds. See United
States v. Gaubert, 499 U.S. 315, 322, 111
S.Ct. 1267, 113 L.Ed.2d 335 (1991).2
[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 In-
vestigation of Failure of the SEC to Un-
cover 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 determi-
nations made in the report’’ by ‘‘fully in-
corporat[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 per-
mits the incorporation of a legally operable
‘‘written instrument’’ such as a contract,
check, letter, or affidavit. See, e.g., Ren-
nie & 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 ed-
itorial cartoons’’ are not properly incorpo-
rated 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.’ Re-
ply.) Additionally, Fed.R.Civ.P. 8(e) re-
quires 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 infer-
ences contained in the Report (as Plaintiffs
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 au-
thority permitting the Court to do so:
Plaintiffs’ Complaint ‘‘reference[s]’’ the
Report ‘‘extensively,’’ and the factual alle-
gations contained in the Report are ‘‘inte-
gral 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 ‘‘or-
ganized, [and is] divided into a description
of the parties, a chronological factual back-
ground, 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
present case, both the Complaint and the
Report satisfy these criteria. Accordingly,
because the Report is both attached to and
incorporated-by-reference into the Com-
plaint, it is properly considered on the
Motion to Dismiss. (See also infra Part
III.A.)
Many of Plaintiffs’ allegations (including
the factual averments contained in the Re-
port) identify decisions that, in hindsight,
could have and should have been made
differently. Other allegations reveal the
2. There are, of course, various other require-
ments and exceptions in the FTCA. This brief
summary only relates to the matter at issue
here—the discretionary function exception.
3. This Order refers to the Office of Inspector
General’s report as ‘‘the Report,’’ and pin-
citations to the Report are abbreviated as
‘‘Ex. A.’’

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1020 707 FEDERAL SUPPLEMENT, 2d SERIES
SEC’s sheer incompetence in regulating
Madoff’s broker-dealer, market-making,
and investment-management operations.
What is lacking in the present Complaint,
however, is any plausible allegation reveal-
ing that the SEC violated its clear, non-
discretionary duties, or otherwise under-
took a course of action that is not poten-
tially susceptible to policy analysis.
B. FACTUAL ALLEGATIONS
The facts of the Madoff fraud need little
introduction. A thorough summary of Ma-
doff’s operations can be found in the re-
cent decision In re Bernard L. Madoff Inv.
Secs. LLC, 424 B.R. 122, 127–32 (Bkrtcy.
S.D.N.Y.2010) (order affirming trustee’s
determination of former investors’ net eq-
uity).
In the present case, Plaintiffs’ central
allegations are largely drawn from the In-
spector General’s Report, which Plaintiffs
have incorporated by reference into the
Complaint. (Compl. ¶ 1 n. 3.) The Com-
plaint alleges the following.
The first warning sign of Madoff’s fraud
came in 1992, when Avellino & Bienes, a
firm that invested exclusively through Ma-
doff’s brokerage, was exposed as a Ponzi
scheme. (Compl. ¶¶ 29–40; Ex. A at 42–
61.) Plaintiffs explain that the SEC’s in-
vestigators were ‘‘woefully inexperienced’’
in the area of Ponzi schemes (Compl. ¶ 32)
and failed to obtain trading records from
the Depository Trust Corporation that
could have revealed that Madoff’s opera-
tions were fraudulent. (Compl. ¶¶ 35, 37.)
Because the SEC was focused on Avellino
& Bienes rather than Madoff, the SEC
staff failed to make a number of other
‘‘common sense’’ inquiries into Madoff’s
operations that ‘‘should have’’ been done.
(Compl. ¶¶ 34, 37, 39.)
The second warning sign came in May
2000, when industry analyst Harry Marko-
polos provided an eight-page complaint to
the Boston SEC office. (Compl. ¶¶ 42–46;
Ex. A at 61–67.) The complaint provided
evidence ‘‘questioning the legitimacy of
Madoff’s reported returns.’’ (Compl. ¶ 42.)
Markopolos presented his findings to an
unqualified senior staff member (Compl.
¶ 44), and although the staffer stated that
he forwarded the matter to the New York
office, he did not actually do so. (Compl.
¶ 45.)
The third warning sign came in March
2001, when Markopolos submitted a second
complaint to the Boston office containing
new, simplified information. (Compl.
¶¶ 47–50; Ex. A at 67–74.) This time, the
matter was forwarded to New York, but
‘‘after just one day’’ the lead enforcement
attorney in New York ‘‘rejected it out of
hand.’’ (Compl. ¶ 49.) Although Marko-
polos’s complaint was more detailed than
the average complaint, the attorney wrote
a short email stating ‘‘I don’t think we
should pursue this matter further.’’
(Compl. ¶¶ 49–50.) 4
The fourth warning sign came in May
2001, when industry publications MAR-
Hedge and Barron’s published articles dis-
cussing the secrecy of Madoff’s operations
and the improbability of his consistently
strong returns. (Compl. ¶¶ 51–57; Ex. A
at 74–77, 80–81, 86.) An SEC staff mem-
ber in the Boston office asked the New
York team reviewing Markopolos’s com-
plaint if they were interested in reading
the articles. (Compl. ¶ 55.) The New
York team apparently did not read the
4. In full, the email stated: ‘‘As we discussed,
after reviewing the complaint received (via
the [Boston office] ) from Harry Markopol[o]s
of Rampart Investments about purported per-
formance claims for funds managed by Ber-
nard Madoff, and some information about
Madoff and others identified in the complaint,
I don’t think we should pursue this matter
further.’’ (Ex. A at 72.)

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1021 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
articles. (Id.) At the same time, the arti-
cles piqued a Washington supervisor’s in-
terest. (Compl. ¶ 56.) Although the su-
pervisor wrote a note on the article stating
that ‘‘[t]his is a great exam[ination] for
us!,’’ no further actions were taken in the
Washington office. (Compl. ¶ 56; Ex. A at
86.)
The first major investigative event came
in May 2003, when a hedge fund manager
provided a complaint to the SEC’s Office
of Compliance Inspections and Examina-
tions in Washington D.C. (Compl. ¶¶ 58–
81; Ex. A at 77–145.) The fund manager’s
complaint summarized a number of red
flags that suggested that Madoff was run-
ning a Ponzi scheme. (Compl. ¶ 59.) The
Investment Management team in Wash-
ington, which was more qualified to handle
an investigation into a Ponzi scheme, re-
ferred the matter to the Washington of-
fice’s Broker–Dealer team. (Compl.
¶¶ 61–62.) The two teams never conferred
on the investigation. (Compl. ¶ 62.) Com-
pounding this failure to confer, the Bro-
ker–Dealer team employed a number of
inexperienced staff members at that time.
(Compl. ¶¶ 63–64.) One team member ex-
plained that ‘‘[a]t the time TTT we were
expanding rapidly,’’ (Compl. ¶ 63, quoting
Ex. A, at 90) and various staff members
recalled that they received little-to-no for-
mal training. (Compl. ¶¶ 63–64.)
Upon receiving the case, the Washington
Broker–Dealer team inexplicably failed to
begin its investigation for nine months and
failed to log its investigation into the
SEC’s Super Tracking and Reporting Sys-
tem (STARS), a computer database used
to track examinations. (Compl. ¶¶ 65–67;
Ex. A at 85 n. 54.) This failure to log the
investigation was consistent with the
SEC’s regular practice at the time. (Id.)
Once the investigation commenced, the
team focused its attention on potential
front-running 5—with which it was more
familiar—rather than a Ponzi scheme.
(Compl. ¶¶ 65–67.) The team created a
written plan, but the plan was ‘‘too nar-
rowly focused’’ (Ex. A at 142) and the team
did not follow through by obtaining rele-
vant information from third parties.
(Compl. ¶ 70.) At one point, the Broker–
Dealer team drafted a letter ‘‘to the [Na-
tional Association of Securities Dealers] to
confirm Madoff’s trading activity,’’ but re-
frained from sending the letter because,
according to one staff member, ‘‘it would
have been too burdensome and time-con-
suming for the staff to review the docu-
ments that the [National Association of
Securities Dealers] would have supplied in
response.’’ (Compl. ¶¶ 69–98.) Similarly,
‘‘the team failed to consult Exchange,’’
even though Madoff’s purported options
trades were being processed through it.
(Compl. ¶ 74.) Instead of receiving this
information from third parties that ‘‘would
have assisted in independently verifying
[Madoff’s] trading activity,’’ the team
‘‘rel[ied] solely on verbal answers’’ from
Madoff, which, according to the Office of
the Inspector General’s consultants, ‘‘is not
an appropriate method of examination.’’
(Compl. ¶¶ 70, 72, quoting Ex. A at 111 n.
74, 206 n. 143.) The team supervisor ad-
mitted that it was ‘‘asinine’’ for the team
not to obtain a proper audit trail, which
Plaintiffs characterize as a ‘‘common-sense
procedure’’ in such an investigation.
(Compl. ¶ 77, quoting Ex. A at 109.)
The Washington team stopped its in-
vestigation in April 2004 because SEC su-
pervisors ‘‘determined that a new investi-
gation probing mutual funds was more
important than following up on Madoff.’’
5. Front-running is the practice in which a
‘‘broker execut[es] orders on a security for its
own account while taking advantage of ad-
vance knowledge of pending orders from its
customers.’’ (Compl. ¶ 66.) See also Black’s
Law Dictionary 739 (9th ed. 2009) (defining
term in similar manner).

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1022 707 FEDERAL SUPPLEMENT, 2d SERIES
(Compl. ¶ 78.) 6 At the end of the investi-
gation, the team failed to produce a final
report, which according to the Report
was a ‘‘critical error’’ that later led to un-
necessary duplication of efforts. (Compl.
¶ 78, quoting Ex. A at 144.)
The second major investigation started
in the Northeast Regional (New York) Of-
fice in April 2004, just as the Washington
investigation was being put on indefinite
hold. (Compl. ¶¶ 82–109.) The New York
investigation was prompted by the SEC’s
discovery of internal emails from a hedge
fund that had invested with Madoff
through a feeder fund that invested direct-
ly in Madoff’s funds. Upon conducting
due diligence, the hedge fund had decided
to withdraw its investments from the Ma-
doff feeder fund. (Compl. ¶¶ 82–83.) The
emails summarized the investor’s concerns
about Madoff’s activities, and essentially
tracked the issues raised in the Markopo-
los reports and the articles that had ap-
peared in MARHedge and Barron’s.
(Compl. ¶¶ 83–84.)
The New York investigation proceeded
in a similar manner as the Washington
investigation. (Compl. ¶ 86.) The case
was transferred from an Investment Man-
agement team to an ill-equipped Broker–
Dealer team; the Broker–Dealer team was
not even assembled for seven months, and
did not begin working for yet another
three months; and, once the investigation
commenced, the Broker–Dealer team nev-
er consulted the Investment Management
team for guidance and advice. (Compl.
¶¶ 86, 88.) Unlike the team that conduct-
ed the Washington investigation, the New
York Broker–Dealer team failed to even
draft a planning memorandum, let alone
follow it. (Compl. ¶ 87.) When conducting
the investigation, the team accepted Ma-
doff’s assertions at face value, even though
they knew or should have known that Ma-
doff was lying—for example, by saying
that he was no longer trading options
(which was contradicted by readily avail-
able records, see Ex. A at 172, 207) and
that he was satisfied with foregoing hun-
dreds of millions of dollars in potential
management fees and receiving only bro-
kerage commissions instead. (Compl.
¶¶ 90–92.) The team focused its investiga-
tion on their own area of expertise (front-
running and ‘‘cherry-picking’’ 7), while ig-
noring other potential areas of investiga-
tion such as looking for a Ponzi scheme.
(Compl. ¶¶ 88–89.) 8 They generally failed
to corroborate information with third par-
ties or follow up on red flags such as
Madoff’s auditor’s conflict of interest and
obvious inadequacy to audit a complex op-
eration like Madoff’s. (Compl. ¶¶ 94–96.)
In spite of these failings, the New York
investigation came remarkably close to un-
covering Madoff’s fraud in June 2005.
The team conducted a two-to-three month
6. One examiner later wrote that ‘‘[i]n early
2004, [the Office of Compliance Inspections
and Examinations] made it a priority to ex-
amine mutual funds’ undisclosed payments to
broker-dealers,’’ (Ex. A at 125, quoting July 1,
2009 letter from Lori Richards to Inspector
General David Kotz), and contemporary rec-
ords confirm this. (Ex. A at 125–26.)
7. ‘‘[C]herry-picking is generally a scheme in
which trades, once they are determined to be
favorable, are allocated to a favored account
at the expense of other accounts.’’ (Ex. A at
146 n. 92.)
8. One of the investigators explained that he
interpreted the initial complaint and referral
as suggesting that the investigation ‘‘focus
exclusively on whether Madoff was using his
market making capability to cherry pick
trades or to front run market making trades
for the benefit of his hedge fund clients.’’
(Ex. A at 167, paraphrasing testimony of John
Nee.) Another team members explained that
‘‘he focused on abusive trading practices rath-
er than the other issues raised in the [referral]
e-mail, in part, because order leakage was a
prominent issue at the time of the examina-
tion.’’ (Ex. A at 168, paraphrasing testimony
of Robert Sollazzo.)

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1023 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
on-site investigation (see Ex. A at 179) and
had a formal interview with Madoff in late
May (Ex. A at 193–95). Embarrassingly
for the SEC, it was during the May meet-
ing that the New York team first
learned—from Madoff himself—about the
prior Washington investigation. (Compl.
¶¶ 102–04.) Shortly after the interview,
the examiners decided that they should
contact Madoff’s clients to corroborate his
trading activity. (Ex. A at 219–21.) The
investigators successfully obtained useful
information from one relevant third party
(Barclays), but they failed to follow up on
it because of a mistaken belief that they
could not obtain audit-trail data from Bar-
clays’s foreign affiliates. (Compl. ¶ 101.)
Another staffer stated that, to his under-
standing, SEC had a general policy of not
contacting third parties to follow up on
leads. (Compl. ¶ 100.) The team also
planned on requesting written responses
to follow-up on their face-to-face meeting
with Madoff, but ultimately failed to do so,
even though they had drafted such an
inquiry letter. (Compl. ¶ 108; Ex. A at
203–04.)
When the New York investigators final-
ly suggested conducting on-site visits of
Madoff’s clients, the team supervisor ve-
toed the suggestion. (Compl. ¶¶ 97–99.)
A Washington investigator had explained
that he ‘‘was hesitant to make trouble for
someone so ‘well connected’ ’’ (Compl. ¶ 97,
quoting Ex. A at 194), and the New York
supervisor ‘‘expressed a fear that he (and
the junior staffers) could be sued as indi-
viduals if their inquiries to third parties
somehow damaged Madoff’s business.’’
(Compl. ¶ 98.) Within days of the decision
not to visit Madoff’s clients, the New York
investigators began drafting their case-
closing memorandum, and the case was
closed by September 2005. (Compl.
¶ 107.) Madoff himself believed that had
the investigators contacted third-party
trading partners, account holders, and/or
trade-clearing and -settlement agencies,
they would likely have exposed the fraud.
(Ex. A at 206–07.)
Almost immediately after the New York
team closed its investigation, Harry Mar-
kopolos provided the Boston office with a
third version of his report on Madoff’s
alleged fraud, sparking off yet another in-
vestigation in Madoff’s operations.
(Compl. ¶¶ 110–146.) Markopolos’s report
summarized the many warning signs that
Madoff was running a Ponzi scheme, and
referred the SEC to a handful of industry
insiders who could corroborate Markopo-
los’s suspicions. (Compl. ¶¶ 111–16.)
Markopolos even recommended that the
SEC simply compare Madoff’s purported
over-the-counter options trading to the
publicly-reported information regarding
exchange-based options trading. (Compl.
¶ 115; see also Ex. C, at 6–7.) Markopolos
explained that if Madoff were truly trading
in options, his high-volume trades would
have a visible effect in the market.
(Compl. ¶ 115.).
The Boston office referred the matter to
the New York office, and emphasized to
the New York staff that the report de-
served close attention. (Compl. ¶ 117.)
The New York office, instead of staffing
the matter with experts in Ponzi schemes,
placed relatively inexperienced staff mem-
bers on the case. (Compl. ¶ 118.) The
investigators failed to treat the matter as a
Ponzi scheme investigation, and generally
refused to credit Markopolos’s report be-
cause of interpersonal tensions (Compl.
¶¶ 119–20, 122) and a misguided belief that
Markopolos was seeking a reward for un-
covering the fraud. (Compl. ¶ 121.) The
team also relied on the earlier New York
team’s incorrect assertion that it had in
fact investigated the Ponzi-scheme angle,
which deterred the new team from fully
following up on Markopolos’s suggestions.
(Compl. ¶ 123.) Additionally, because the
new team had failed to file a ‘‘matter un-

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1024 707 FEDERAL SUPPLEMENT, 2d SERIES
der inquiry’’ report for two months, a new
tip—this time from an anonymous investor
who stated that he had invested with Ma-
doff but withdrew his money when he be-
gan suspecting fraud—was improperly ig-
nored. (Compl. ¶¶ 124–25.) Because the
team felt outmatched by the technical as-
pects of Madoff’s operations, they forward-
ed certain matters to the SEC’s Office of
Economic Analysis, but due to miscommu-
nications running in both directions, these
efforts failed to produce useful insights.
(Compl. ¶¶ 128–30.)
The unprepared New York investiga-
tions team eventually proceeded with its
investigation and interviewed Madoff di-
rectly. (Compl. ¶¶ 132–36.) At one point,
the interview produced potentially incrimi-
nating information—Madoff’s account
number with the Depository Trust Compa-
ny—but the investigators failed to proper-
ly follow up on the matter. (Compl.
¶¶ 136–37.) When a junior staffer contact-
ed the Depository Trust Company, the
staffer failed to recognize the significance
of the fact that Madoff held his assets in
commingled accounts, and the staffer also
failed to ask about the size of the account.
(Compl. ¶¶ 138–39; Ex. A at 323–24.) Ma-
doff himself has acknowledged that had
the investigators simply asked to see the
size of the account, they immediately
would have discovered that Madoff’s trad-
ing positions were nowhere near as large
as he had claimed. The staff believed,
based on Madoff’s representations, that
the Depository Trust Company account
held over $2 billion of securities; in fact,
the account held only between $10 and $30
million. (Ex. A at 332–33.)
The investigators also failed to recognize
the significance of the fact that the Nation-
al Association of Securities Dealers told
them that Madoff had no option positions
on a particular date, even though Madoff’s
purported trading strategy was based on
options trades. (Compl. ¶ 140.) Finally,
the investigators made, in the Report’s
description, an ‘‘inexplicable decision’’ not
to send a letter to obtain information from
Madoff’s purported European counterpar-
ties. (Compl. ¶ 141; Ex. A at 371.) The
team closed the investigation in June 2006,
having overlooked various clear indications
of Madoff’s fraud. (Compl. ¶¶ 144–47.)
The team also failed to follow up on possi-
ble charges related to Madoff’s various
misrepresentations and non-disclosures
during the interview and examinations.
(See Ex. A at 322–23.)
Following that investigation, the SEC
received three more tips that might have
uncovered the fraud. (Compl. ¶¶ 148–53.)
The first was dismissed when Madoff’s
attorney told the SEC that the tipster was
not actually a Madoff client (Compl. ¶ 150);
the second was yet another Markopolos
warning that was simply ignored because
the staff believed that it had fully exam-
ined the Ponzi-scheme allegations (Compl.
¶ 151; Ex. A at 354–55); and the third tip
(from the former Madoff investor whose
earlier complaint had arrived just prior to
the opening of the final investigation) was
likewise ignored because the investigation
was deemed complete. (Compl. ¶¶ 152–
53.)
More than two years after the closure of
the final investigation, Madoff’s fraud was
exposed. (Compl. ¶¶ 154–55.) The fraud
could have been discovered at any number
of points in the previous sixteen years had
the SEC ‘‘performed its everyday, non-
discretionary functions with the most basic
level of competence.’’ (Compl. ¶ 158.) At
various points, even ‘‘a single action, per-
formed diligently and ably, or even with
the most minimal competence, would have
exposed the scheme.’’ (Compl. ¶ 159.)

-- 15 of 46 --

1025 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
II. PRELIMINARY PROCEDURAL
ISSUES
A. THE SECURITIES AND EX-
CHANGE COMMISSION IS NOT
A PROPER DEFENDANT
The three Dichter Plaintiffs (that is, the
Dichter–Mad investment partnership, Phil-
ip Dichter, and Claudia G. Dichter) volun-
tarily dismissed the SEC and the Doe
Defendants on January 11, 2010.
[3] The SEC brings a separate Motion
to Dismiss Plaintiff Gordon’s claims
against it. [Docket no. 7.] In its one-page
motion, the SEC cites clear controlling
authority that bars Gordon’s claims. See,
e.g., FDIC v. Craft, 157 F.3d 697, 706 (9th
Cir.1998) (‘‘The FTCA is the exclusive
remedy for tortious conduct by the United
States, and it only allows claims against
the United States. Although such claims
can arise from the acts or omissions of
United States agencies (28 U.S.C. § 2671),
an agency itself cannot be sued under the
FTCA.’’); see also Standifer v. SEC, 542
F.Supp.2d 1312, 1317 (N.D.Ga.2008) (‘‘The
SEC cannot be sued under the FTCA.’’)
In Gordon’s Opposition,9 he does not
even attempt to argue that his claims
against the SEC are viable. Accordingly,
the SEC’s Motion is GRANTED. Gor-
don’s claims against the SEC are DIS-
MISSED.
B. THE DOE DEFENDANTS ARE
PERMISSIBLE
As for the Doe Defendants, Gordon
properly points out that the Government
does not necessarily have standing to ob-
ject to their presence. For purposes of
this motion, then, the Doe Defendants’ lia-
bility is linked with that of the United
States.
III. LEGAL STANDARDS
A. MOTION TO DISMISS FOR
LACK OF SUBJECT MATTER
JURISDICTION
[4] In order to comply with the notice
pleading standards of Fed.R.Civ.P. 8(a), a
plaintiff’s complaint ‘‘must contain suffi-
cient factual matter, accepted as true, to
‘state a claim to relief that is plausible on
its face.’ ’’ Ashcroft v. Iqbal, ––– U.S.
––––, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868
(2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167
L.Ed.2d 929 (2007)). ‘‘A claim has facial
plausibility when the plaintiff pleads factu-
al content that allows the court to draw the
reasonable inference that the defendant is
liable for the misconduct alleged.’’ Id. A
complaint that offers mere ‘‘labels and con-
clusions’’ or ‘‘a formulaic recitation of the
elements of a cause of action will not do.’’
Id.; see also Moss v. U.S. Secret Service,
572 F.3d 962, 969 (9th Cir.2009) (citing
Iqbal, 129 S.Ct. at 1951).10
9. Gordon’s ‘‘Opposition’’ brief is 37–pages
long, well above the 25–page limit set by this
Court. In addition, Gordon did not file his
substantive brief with this Court until March
1, which was one week later than the dead-
line set by this Court’s Local Rules. The
Court accordingly STRIKES Gordon’s Oppo-
sition. However, as the document raises the
same issues as are raised in Plaintiffs’ joint
Opposition and Sur–Reply (which the Court
has considered despite its procedural irregu-
larities), the Court has addressed all the is-
sues raised in Gordon’s stricken submission.
10. Although the present motion is a motion to
dismiss for lack of jurisdiction under Fed. R.
Civ. 12(b)(1) rather than a motion to dismiss
for failure to state a claim under Fed.R.Civ.P.
12(b)(6), motions to dismiss on jurisdictional
grounds are governed by the standard plead-
ing rules of Fed.R.Civ.P. 8(a). See Doe v.
Holy See, 557 F.3d 1066, 1074 (9th Cir.2009)
(per curiam) (citing Twombly, 127 S.Ct. at
1964–65), cert. filed (June 25, 2009). In addi-
tion, it should be noted that Twombly and
Iqbal, while technically brought under Fed. R.
Civ. 12(b)(6), focused their analysis on the
notice pleading requirements of Fed.R.Civ.P.
8(a). Twombly and Iqbal therefore state the
proper standard for addressing the sufficiency
of Plaintiffs’ allegations with respect to the
Court’s subject matter jurisdiction.

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1026 707 FEDERAL SUPPLEMENT, 2d SERIES
Generally, the Court’s analysis is limited
to the contents of the complaint. See
Schneider v. Cal. Dept. Of Corrections, 151
F.3d 1194, 1197 n. 1 (9th Cir.1998) (cita-
tions omitted). However, ‘‘[w]hen a plain-
tiff has attached various exhibits to the
complaint, those exhibits may be consid-
ered in determining whether dismissal [i]s
proper.’’ Parks School of Business, Inc. v.
Symington, 51 F.3d 1480, 1484 (9th Cir.
1995) (citation omitted). Likewise, the
Court ‘‘may TTT consider certain materi-
als—documents attached to the complaint,
documents incorporated by reference in
the complaint, or matters of judicial no-
tice—without converting the motion to dis-
miss into a motion for summary judg-
ment.’’ United States v. Ritchie, 342 F.3d
903, 907 (9th Cir.2003).
When a motion to dismiss is granted,
ordinarily ‘‘any dismissal[,] TTT except one
for lack of jurisdiction, improper venue,
or failure to join a party under Rule 19[,]
operates as an adjudication on the merits.’’
Fed.R.Civ.P. 41(b) (emphasis added).
B. FEDERAL TORT CLAIMS ACT
The Federal Tort Claims Act (‘‘FTCA’’)
‘‘gives federal courts jurisdiction over
claims against the United States for mon-
ey damages ‘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, under circumstances where
the United States, if a private person,
would be liable to the claimant in accor-
dance with the law of the place where the
act or omission occurred.’ ’’ Sheridan v.
United States, 487 U.S. 392, 398, 108 S.Ct.
2449, 101 L.Ed.2d 352 (1988) (quoting 28
U.S.C. § 1346(b)). The FTCA provides,
however, that the government shall not be
liable for ‘‘[a]ny claim based upon an act or
omission of an employee of the Govern-
ment TTT based upon the exercise or per-
formance or the failure to exercise or per-
form a discretionary function or duty on
the part of a federal agency or an employ-
ee of the Government, whether or not the
discretion involved be abused.’’ 28 U.S.C.
§ 2680(a). This statutory provision,
known as the ‘‘discretionary function ex-
ception,’’ lies at the heart of the present
motion. Because the FTCA is jurisdic-
tional, it must be emphasized that the
present analysis is focused on jurisdiction-
al considerations rather than the merits of
Plaintiffs’ Complaint.
C. DISCRETIONARY FUNCTION
EXCEPTION
The discretionary function exception
provides the government with immunity
from suit for ‘‘[a]ny claim TTT based upon
the exercise or performance of the failure
to exercise or perform a discretionary
function or duty on the part of a federal
agency or employee of the Government,
whether or not the discretion involved be
abused.’’ 28 U.S.C. § 2680(a). ‘‘In this
way, the discretionary function exception
serves to insulate certain governmental de-
cision-making from ‘judicial second guess-
ing of legislative and administrative deci-
sions grounded in social, economic, and
political policy through the medium of an
action in tort.’ ’’ Terbush v. United States,
516 F.3d 1125, 1129 (9th Cir.2008) (quoting
United States v. S.A. Empresa de Viacao
In the only post-Twombly circuit court to
address pleading standards in the FTCA con-
text, the Fifth Circuit cited Twombly as the
operative standard governing a jurisdictional
dispute like the present one. Castro v. United
States, 560 F.3d 381, 386 (5th Cir.2009) (cit-
ing Lane v. Halliburton, 529 F.3d 548, 557
(5th Cir.2008)). In addition, the Ninth Cir-
cuit has explicitly applied Twombly when ana-
lyzing a complaint under the discretionary
function exception caselaw, but only had oc-
casion to do so under the Foreign Sovereign
Immunities Act, not the FTCA. Doe v. Holy
See, 557 F.3d at 1073–74, 1084–85.

-- 17 of 46 --

1027 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
Aerea Rio Grandense (Varig Airlines),
467 U.S. 797, 104 S.Ct. 2755, 81 L.Ed.2d
660 (1984)); accord Marbury v. Madison,
5 U.S. (1 Cranch) 137, 170, 2 L.Ed. 60
(1803) (‘‘The province of the court is, sole-
ly, to decide on the rights of individuals,
not to inquire how the executive, or execu-
tive officers, perform duties in which they
have discretion.’’).
Whether a given action by a government
employee is protected by the discretionary
function exception involves a two-part in-
quiry.
First, the court must determine whether
the challenged action involves an ‘‘element
of judgment or choice.’’ United States v.
Gaubert, 499 U.S. 315, 322, 111 S.Ct. 1267,
113 L.Ed.2d 335 (1991). If ‘‘a federal stat-
ute, regulation, or policy specifically pre-
scribes a course of action for the employee
to follow,’’ then the employee can be held
liable for failing to follow the prescribed
directive. Id. (emphasis added).
Second, ‘‘even assuming the challenged
conduct involves an element of judgment,
it remains to be decided whether that
judgment is of the kind that the discretion-
ary function exception was designed to
shield.’’ Id. ‘‘Because the purpose of this
exception is to prevent judicial second-
guessing of legislative and administrative
decisions grounded in social, economic, and
political policy TTT, the exception protects
only governmental actions and decisions
based on considerations of public policy.’’
Id. at 323, 111 S.Ct. 1267.
[5] In assessing the second step, it is
important to keep in mind that ‘‘if a regu-
lation allows the employee discretion, the
very existence of the regulation creates a
strong presumption that a discretionary
act authorized by the regulation involves
consideration of the same policies which
led to the promulgation of the regula-
tions.’’ Id. at 324, 111 S.Ct. 1267 (empha-
sis added). Thus, ‘‘[w]hen established gov-
ernmental policy, as expressed or implied
by statute, regulation, or agency guide-
lines, allows a Government agent to exer-
cise discretion, it must be presumed that
the agent’s acts are grounded in policy
when exercising that discretion.’’ Id. In
contrast, if the applicable statute or regu-
lation does not give the employee discre-
tion, no presumption attaches, and the
court must determine whether the deci-
sions were ‘‘of the kind’’ that are ‘‘suscepti-
ble to policy analysis.’’ Gaubert, 499 U.S.
at 323, 325, 111 S.Ct. 1267.
Where there is no statute, regulation, or
policy on point (either conferring discre-
tion or limiting discretion), the relevant
question is not whether the decision was
the result of an actual policy-based deci-
sion-making process. As the Ninth Circuit
has repeatedly explained, ‘‘we do not need
actual evidence that policy-weighing was
undertaken.’’ Terbush, 516 F.3d at 1136 n.
5 (citing Gaubert, 499 U.S. at 324–25, 111
S.Ct. 1267). Instead, ‘‘[t]he focus of the
inquiry is TTT on the nature of the actions
taken and on whether they are susceptible
to policy analysis.’’ See Gaubert, 499 U.S.
at 325, 111 S.Ct. 1267 (emphasis added);
see also GATX/Airlog Co., 286 F.3d at
1178 (‘‘[T]he question is not whether policy
factors necessary for a finding of immunity
were in fact taken into consideration, but
merely whether such a decision is suscep-
tible to policy analysis.’’); Nurse v. United
States, 226 F.3d 996, 1001 (9th Cir.2000)
(‘‘the challenged decision need not actually
be grounded in policy considerations so
long as it is, by its nature, susceptible to a
policy analysis.’’); Childers v. United
States, 40 F.3d 973, 974 n. 1 (9th Cir.1994)
(‘‘The application of the exception does not
depend, however, on whether federal offi-
cials actually took public policy consider-
ations into account. All that is required is
that the applicable statute or regulation
gave the government agent discretion to
take policy goals into account.’’); Lesoeur
v. United States, 21 F.3d 965, 969 (9th

-- 18 of 46 --

1028 707 FEDERAL SUPPLEMENT, 2d SERIES
Cir.1994) (‘‘[Appellants] argue that the dis-
cretionary function exception cannot apply
in the absence of a ‘conscious decision.’
The statute is not so limitedTTTT The lan-
guage is directed at the nature of the
conduct, and does not require an analysis
of the decision-making process.’’) (quoting
In re Consol. United States Atmos. Test-
ing Litig., 820 F.2d 982, 988–89 (9th Cir.
1987)).
The Ninth Circuit has noted that ‘‘the
distinction between protected and unpro-
tected decisions can be difficult to appre-
hend, but this is the result of the nature of
government actions—they fall ‘along a
spectrum, ranging from those totally di-
vorced from the sphere of policy analysis,
such as driving a car, to those fully
grounded in regulatory policy, such as the
regulation and oversight of a bank.’ ’’ Sol-
dano v. United States, 453 F.3d 1140, 1145
(9th Cir.2006) (quoting Whisnant v. Unit-
ed States, 400 F.3d 1177, 1181 (9th Cir.
2005)). This distinction is drawn in part
from the Supreme Court’s discussion in
Gaubert, in which the Court explained:
There are obviously discretionary acts
performed by a Government agent that
are within the scope of his employment
but not within the discretionary function
exception because these acts cannot be
said to be based on the purposes that
the regulatory regime seeks to accom-
plish. If one of the officials involved in
this case drove an automobile on a mis-
sion connected with his official duties
and negligently collided with another
car, the exception would not apply. Al-
though driving requires the constant ex-
ercise of discretion, the official’s deci-
sions in exercising that discretion can
hardly be said to be grounded in regula-
tory policy.
Gaubert, 499 U.S. at 325 n. 7, 111 S.Ct.
1267.
In addition to these general principles, it
should also be noted that the courts have
rejected ‘‘a rigid dichotomy between ‘plan-
ning’ and ‘operational’ decisions and activi-
ties.’’ Terbush, 516 F.3d at 1130 (citing
Gaubert, 499 U.S. at 324, 111 S.Ct. 1267).
The courts have likewise rejected the ar-
gument that the government is per se im-
mune when conducting ‘‘uniquely govern-
mental functions,’’ as such an analysis
would ‘‘push the courts into the ‘non-gov-
ernmental’-‘governmental’ quagmire that
has long plagued the law of municipal cor-
porations.’’ Indian Towing Co. v. United
States, 350 U.S. 61, 64, 76 S.Ct. 122, 100
L.Ed. 48 (1955); see also United States v.
Olson, 546 U.S. 43, 46, 126 S.Ct. 510, 163
L.Ed.2d 306 (2005) (reaffirming Indian
Towing ).
D. PROCEDURAL CONSIDER-
ATIONS RELATING TO THE
DISCRETIONARY FUNCTION
EXCEPTION
[6] In deciding whether to grant De-
fendant’s Motion to Dismiss for lack of
subject matter jurisdiction, the Court
‘‘must accept as true the factual allegations
in the complaint.’’ Terbush v. United
States, 516 F.3d 1125, 1128 (9th Cir.2008)
(citing GATX/Airlog Co. v. United States,
286 F.3d 1168, 1173 (9th Cir.2002)). ‘‘The
United States bears the burden of proving
the applicability of the discretionary func-
tion exception.’’ Id. (citing Prescott v.
United States, 973 F.2d 696, 702 (9th Cir.
1992)). The government must prove that
each of the allegedly wrongful acts, by
each allegedly negligent actor, is covered
by the discretionary function exception.
GATX/Airlog, 286 F.3d at 1174 (‘‘[W]hen
determining whether the discretionary
function exception is applicable, ‘the prop-
er question to ask is not whether the Gov-
ernment as a whole had discretion at any
point, but whether its allegedly negligent
agents did in each instance.’ ’’) (citing In re
Glacier Bay, 71 F.3d 1447, 1451 (9th Cir.
1995)) (alterations omitted). In examining

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1029 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
each of the government’s particular acts,
‘‘the question of how the government is
alleged to have been negligent is critical.’’
Whisnant v. United States, 400 F.3d 1177,
1185 (9th Cir.2005) (emphasis added) (cit-
ing Glacier Bay, 71 F.3d at 1451). The
central question is whether, ‘‘at this stage
of the case’’—and under the standard of
proof applicable at this stage—‘‘the gov-
ernment has [or has] not established that
choices exercised by government officials
involved policy judgments.’’ Prescott, 973
F.2d at 703.
These considerations can be summarized
succinctly by reference to the two-step
analysis set forth in Gaubert, 499 U.S. at
322–25, 111 S.Ct. 1267. The government
can meet its initial burden in one of two
ways, and the plaintiffs can respond to
each showing in one of two ways.
First, the government may show that a
statute, regulation or policy confers discre-
tion on the government actor; this gives
rise to a ‘‘strong presumption’’ that the
alleged harmful act was guided by policy
judgment. Id. at 324, 111 S.Ct. 1267.
Second, the government may show that
the actor’s course of action was ‘‘of the
kind’’ that is ‘‘susceptible to policy analy-
sis.’’ Id. at 323, 325, 111 S.Ct. 1267. Ei-
ther of these showings will satisfy the gov-
ernment’s ‘‘burden of proving application
of the discretionary function exception.’’
Blackburn v. United States, 100 F.3d 1426,
1436 (9th Cir.1996).
‘‘[O]nce the Government met its burden,
TTT the party opposing [the application of
the discretionary function exception] ha[s]
to present sufficient evidence to withstand
dismissal’’ for lack of jurisdiction. Id. Un-
der Gaubert, the plaintiffs may meet their
the burden by showing either (1) that
there are mandatory rules prescribing the
actor’s course of action, or (2) that the
actor’s course of action was not ‘‘of the
kind’’ that is ‘‘susceptible to policy analy-
sis.’’ Gaubert, 499 U.S. at 323–25, 111
S.Ct. 1267.
E. ILLUSTRATIVE CASELAW
As explained by a leading treatise,
‘‘cases under the [Federal Tort Claims]
Act can be roughly grouped into there
categories: (1) claims based upon [non-
regulatory] determinations or decisions or
other acts of choice or judgment of govern-
ment officials and administrators; (2)
claims based upon the regulatory activities
of regulatory agencies or officials; and (3)
claims arising from the design or execution
of public works and other authorized gov-
ernmental programs.’’ Lester S. Jayson &
Robert C. Longstreth, 2 Handling Federal
Tort Claims, § 12.05[1] (2009 update).
‘‘Whatever else the discretionary func-
tion exception may include, TTT it plainly
was intended ‘to encompass the discretion-
ary acts of the Government acting in its
role as regulator of the conduct of private
individuals.’ ’’ Jayson & Longstreth, Fed-
eral Tort Claims, § 12.07 (quoting United
States v. Varig Airlines, 467 U.S. 797, 813–
14, 104 S.Ct. 2755, 81 L.Ed.2d 660 (1984)).
That is not to say that regulatory actions
enjoy blanket immunity: the ‘‘uniquely
government functions’’ approach was re-
jected by the Supreme Court over half-a-
century ago. See Indian Towing, 350 U.S.
at 64, 76 S.Ct. 122. But at the very least,
it appears from the caselaw and secondary
authorities that regulatory actions are
more likely to be deemed ‘‘discretionary
functions’’ than non-regulatory actions are.
A leading case involving government
regulators is United States v. Gaubert, 499
U.S. 315, 111 S.Ct. 1267, 113 L.Ed.2d 335
(1991). In that case, the plaintiff alleged
that the Federal Home Loan Bank Board
and the Federal Home Loan Bank Dallas
branch ‘‘had been negligent in carrying out
their supervisory activities’’ following their
take-over of a failing Texas savings-and-

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1030 707 FEDERAL SUPPLEMENT, 2d SERIES
loan. Id. at 318, 111 S.Ct. 1267. The
plaintiff, who was the chairman and largest
shareholder of the thrift, sought to recover
the lost value of his shares and the value of
his personal guarantee of the corporation’s
debts, amounting to $100 million in total.
Id. at 319–20, 111 S.Ct. 1267. In particu-
lar, the plaintiff alleged that the Federal
Home Loan Bank Dallas branch had pres-
sured the failed thrift’s sitting officers and
directors to resign and then recommended
their replacements. Id. at 319, 111 S.Ct.
1267. The Dallas branch then became sig-
nificantly involved in the thrift’s day-to-
day operations. Id. at 319–20, 111 S.Ct.
1267. The plaintiff’s allegations centered
on the ‘‘alleged negligence of federal offi-
cials in selecting the new officers and di-
rectors and in participating in the day-to-
day management of’’ the thrift. Id. at 320,
111 S.Ct. 1267.
The Supreme Court, after restating the
basic two-part test for the discretionary
function exception, held that ‘‘[d]ay-to-day
management of banking affairs, like the
management of other businesses, regularly
requires judgment as to which of a range
of permissible courses is the wisest.’’ Id.
at 325, 111 S.Ct. 1267. In this regard, the
Court rejected the proposed distinction be-
tween ‘‘policymaking’’ and ‘‘operational’’
functions. Id. In order to determine
whether the alleged acts were discretion-
ary or not, the Court reviewed the com-
plaint’s allegations of the government’s in-
volvement in the thrift’s day-to-day affairs.
These allegations focused on the govern-
ment’s involvement in day-to-day manage-
ment decisions, hiring and salary decisions,
operational matters, financial matters, as-
set management, and legal affairs. Id. at
327–28, 111 S.Ct. 1267. The government
became involved in strategic planning, for
example by recommending that the thrift
change from being state-chartered to be-
coming federally-chartered, and by giving
advice regarding a potential bankruptcy
filing. Id. at 328, 111 S.Ct. 1267.
Ultimately, the Court rejected the plain-
tiff’s argument ‘‘that the challenged ac-
tions fall outside the discretionary function
exception because they involved the mere
application of technical skills and business
expertise.’’ Id. at 331, 111 S.Ct. 1267.
The Court explained that the day-to-day
operations of a bank require more than
mere ‘‘mathematical calculations’’ that ‘‘in-
volve no choice or judgment in carrying
out the calculations.’’ Id. Importantly, the
Court also noted that ‘‘neither party has
identified formal regulations governing
the conduct in question.’’ Id. at 329, 111
S.Ct. 1267 (emphasis added). The Court
identified broad statutory grants of discre-
tion to the Federal Home Loan Bank to
engage in formal supervisory actions, and
found no prohibition on the agency’s use of
less formal supervisory tools. Id. The
Court also identified a formal policy state-
ment from the government in which the
agency explained its policy ‘‘that supervi-
sory actions must be tailored to each case,’’
ranging from ‘‘informal supervisory guid-
ance and oversight,’’ to implementation of
a ‘‘supervisory agreement,’’ and, in the
most problematic cases, an immediate
‘‘cease-and-desist order.’’ Id. at 330–31, 111
S.Ct. 1267 (quoting FHLBB Resolution
No. 82–381 (May 26, 1982)).
Notably, the Court approvingly quoted
from the lower court’s explanation that the
agency undertook its day-to-day role in an
effort to further ‘‘social, economic, or polit-
ical policies’’:
First, they sought to protect the solven-
cy of the savings and loan industry at
large, and maintain the public’s confi-
dence in that industry. Second, they
sought to preserve the assets of [the
thrift] for the benefit of depositors and
shareholders, of which [plaintiff] was
one.
Id. at 332, 111 S.Ct. 1267 (quoting 885 F.2d
1284, 1290 (5th Cir.1989)). In this regard,

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1031 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
the Supreme Court highlighted the fact
that ‘‘[t]here are no allegations that the
regulators gave anything other than the
kind of advice that was within the purview
of the policies behind the statutes.’’ Id. at
333, 111 S.Ct. 1267. For example, the
plaintiff admitted ‘‘the regulators replaced
[the thrift’s] management in order to pro-
tect the [federal savings and loan insur-
ance corporation’s] insurance fund.’’ Id. at
332, 111 S.Ct. 1267.
‘‘In the end,’’ the Court concluded, ‘‘Gau-
bert’s amended complaint alleges nothing
more than negligence on the part of the
regulators.’’ Id. at 334, 111 S.Ct. 1267.
The Court explained that even day-to-day
regulatory decisions were protected by the
discretionary function exception: ‘‘If the
routine or frequent nature of a decision
were sufficient to remove an otherwise
discretionary act from the scope of the
exception, then countless policy-based de-
cisions by regulators exercising day-to-day
supervisory authority would be actionable.
This is not the rule of our cases.’’ Id.
Gaubert, then, is a guidepost for two
reasons: one, because it is the most recent
Supreme Court authority in this area, and
two, because it involved a roughly analo-
gous factual scenario—the conduct of fi-
nancial regulators in their day-to-day reg-
ulatory activities. (Additional cases that
specifically discuss the SEC are discussed
infra.) It is worth noting, then, that Gau-
bert’s reasoning weighs heavily in favor of
Defendant’s position.
A pair of other cases are worth discuss-
ing at length. These cases set forth prin-
ciples that have guided the Ninth Circuit’s
analysis where cases involve a combination
of discretionary and non-discretionary
duties.
In Glacier Bay, the Ninth Circuit held
that hydrographers for the National
Oceanic and Atmospheric Administration
could be sued for their non-discretionary
actions made while preparing nautical
charts. 71 F.3d at 1452–54. The govern-
ment had argued that its supervising hy-
drographers retained discretion when re-
viewing and approving the charts, and that
this final level of discretion immunized all
of the allegedly negligent conduct during
the oceanic surveys and drafting of the
charts. Id. at 1451. The court explained
that the final review was indeed discretion-
ary, because the supervisors had to decide
whether the survey was sufficiently accu-
rate and whether the social, economic, and
political benefits of conducting further sur-
veys outweighed the costs of doing so. Id.
at 1454. However, the court also deter-
mined that the discretionary final review
could not insulate the surveying staff’s
negligent acts that violated the surveyors’
mandatory duties. Id. at 1451. Instead,
the court explained that the relevant ques-
tion is whether ‘‘each person taking an
allegedly negligent action had discretion,’’
not whether ‘‘the Government as a whole
had discretion at any point.’’ Id.11
The court then engaged in a close analy-
sis of the surveyors’ actions to determine if
they violated any non-discretionary duties.
Id. at 1452–54. To find these mandatory
duties, the court looked to ‘‘the Depart-
ment of Commerce’s ‘Hydrographic Manu-
al’ and [ ] the 1964 and 1975 Project In-
structions specifically drafted for the two
surveys [at issue].’ ’’ Id. at 1452. The
court noted that, contrary to the govern-
ment’s assertion, such internal guidelines
were in fact ‘‘binding for purposes of the
discretionary function inquiry.’’ Id. at
1452 n. 1. The court found that the Hydro-
11. The court also noted, however, that the
presence of a discretionary final review might
affect the merits of the claim because the
plaintiff would be unable to show that the
negligent acts proximately caused the plain-
tiff’s harm. Id. (citing Routh v. United States,
941 F.2d 853, 855 (9th Cir.1991).)

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1032 707 FEDERAL SUPPLEMENT, 2d SERIES
graphic Manual and Project Instructions
established a number of mandatory proce-
dures for conducting oceanic surveys. Id.
at 1451–52. Much of the ‘‘discretion’’
available to the surveyors involved purely
scientific judgments, not judgments based
on ‘‘economic, political and social policy’’
that would be shielded from scrutiny under
the FTCA. Id. at 1453. Notably, the court
contrasted the 1964 survey instructions
with the 1975 survey instructions and
found that the former contained mandato-
ry language—‘‘[a]ll indications of shoals
shall be thoroughly investigated’’—where-
as the latter did not contain such language,
and instead stated that surveys ‘‘should be
guided by [27 different] considerations TTT
and [the surveyor’s] past experience in
similar areas.’’ Id. at 1453 (quoting Hy-
drographic Manual and 1964 Survey In-
structions). Accordingly, the earlier 1964
survey was deemed non-discretionary,
whereas the 1975 survey—requiring sur-
veyors to carefully balance 27 different
considerations—was discretionary. Id.
Three years later, the Ninth Circuit
clarified its holding in Glacier Bay, ex-
plaining that in some instances, an under-
lying violation of a mandatory duty will be
immune from suit if another government
agent’s own exercise of discretion inter-
vened prior to the plaintiff’s injury. The
court explained that the discretionary
function exception applies whenever a ‘‘ro-
bust exercise of discretion intervenes be-
tween an alleged government wrongdoer
and the harm suffered by a plaintiff.’’
General Dynamics Corp. v. United States,
139 F.3d 1280, 1285 (9th Cir.1998). The
court proceeded to distinguish the case at
hand from Glacier Bay. The plaintiff in
General Dynamics alleged that govern-
ment auditors had negligently performed
an audit that led prosecutors to indict the
plaintiff for defrauding the United States,
a charge which the plaintiff successfully
defended. Id. at 1282. The court held
that the plaintiff, by attempting to recover
for the auditors’ professional negligence
rather than the prosecutors’ clearly discre-
tionary decision to prosecute, was improp-
erly attempting to plead around the discre-
tionary function exception. Id. at 1283–84.
The court refused to ‘‘accord amaranthine
obeisance to a plaintiff’s designation of tar-
geted employees’’ when, in sum and sub-
stance, the complaint was alleging prosecu-
torial misconduct. Id. at 1283.
The General Dynamics court distin-
guished Glacier Bay by emphasizing that
the central focus is the nature of the
allegedly harmful act. Id. at 1284–85.
Obviously, ‘‘many actions within an agency
pass through the hands of somebody with
some discretion at some stage’’; the mere
presence of discretion at one stage in the
process does not automatically immunize
the non-discretionary negligent conduct
that precedes. Id. at 1284. Accordingly,
when an oceanic chart is negligently inves-
tigated and drafted in violation of manda-
tory rules, the presence of a discretionary
final review does not immunize the negli-
gent investigations and drafting. Id. In
this regard, the court noted that Glacier
Bay involved a ‘‘tight coupling between
hydrographers, reviewers, charts, and re-
sults.’’ Id. at 1284.
But when an actor with ‘‘broad based
discretion’’ such as the prosecutor in Gen-
eral Dynamics undertakes ‘‘a totally sepa-
rate exercise of discretion’’ that is indepen-
dent of the underlying negligent act, all of
the government’s acts are immunized—
including the earlier actions that may have
violated mandatory duties. Id. at 1285.
The court explained that prosecutors have
‘‘access to a great deal of information be-
yond that submitted by any one agency’’
such as the negligent auditors. Because
‘‘the prosecutors could have had even more
information if they had chosen to pursue
it,’’ the prosecutor’s decision to prosecute
the plaintiff was a sufficiently ‘‘robust ex-

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1033 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
ercise of discretion’’ to trigger application
of the discretionary function exception.
Id. As a result, all of government’s negli-
gent acts were immunized—even the ones
that violated non-discretionary auditing
principles.
Although they are factually distinguish-
able from the present case, two out-of-
circuit decisions are also worth noting in
order to show that the reasoning in Gen-
eral Dynamics has been adopted in other
circuits.12 In Sloan v. United States
Dept. of Housing and Urban Develop-
ment, 236 F.3d 756 (D.C.Cir.2001), a con-
tractor sued the Department of Housing
and Urban Development under the FTCA
for negligently conducting an audit of his
construction site and for suspending him
from government contract work based on
the erroneous audit. 236 F.3d at 758–59.
On appeal from the district court’s dis-
missal of the complaint for lack of sub-
ject matter jurisdiction, the contractor
contended that while the suspension of
his government contract work was a dis-
cretionary function, the audit was not a
discretionary function because it was gov-
erned by standards of professional prac-
tice. Id. at 761. The court rejected that
contention, holding that there was ‘‘no
meaningful way in which the allegedly
negligent investigatory acts could be con-
sidered apart from the totality of the
prosecution.’’ Id. (quoting Gray v. Bell,
712 F.2d 490, 516 (D.C.Cir.1983)) (inter-
nal quotation marks omitted). The court
noted that ‘‘[t]he complaint does not al-
lege any damages arising from the inves-
tigation itself, but only harm caused by
the suspension to which it assertedly
led.’’ Id. at 762.
In Fisher Bros. Sales, Inc. v. United
States, 46 F.3d 279 (3d Cir.1995) (en banc),
Chilean fruit growers sued the Food and
Drug Administration under the FTCA for
banning the importation of Chilean fruit
based on a negligently conducted laborato-
ry test concluding that the fruit contained
cyanide. 46 F.3d at 282–83. Recognizing
that the Commissioner’s decision to ban
the fruit was a discretionary function, the
fruit growers alleged injury ‘‘based upon’’
the negligence of the laboratory techni-
cians, who were bound by the agency’s
Regulatory Procedures Manual. Id. at
286. The Third Circuit rejected this char-
acterization of the claim, reasoning that
‘‘[t]he reality here is that the injuries of
which the plaintiffs complain were caused
by the Commissioner’s decisions and, as a
matter of law, their claims are therefore
‘based upon’ those decisions.’’ Id. The
court concluded that ‘‘a claim must be
‘based upon’ the exercise of a discretionary
function whenever the immediate cause of
the plaintiff’s injury is a decision which is
susceptible of policy analysis and which is
made by an official legally authorized to
make it.’’ Id. at 282.
F. UNDERLYING POLICIES OF
THE DISCRETIONARY FUNC-
TION EXCEPTION
Before analyzing the parties’ specific ar-
guments, it is also helpful to explain the
policies that animate the discretionary
function exception. As summarized suc-
cinctly in Gray v. Bell, 712 F.2d 490
(D.C.Cir.1983), cert. denied, 465 U.S. 1100,
104 S.Ct. 1593, 80 L.Ed.2d 125 (1984):
The modern policy basis justifying sov-
ereign immunity from suit has three
principal themes. First, and most im-
portant, under traditional principles of
separation of powers, courts should re-
frain from reviewing or judging the pro-
priety of the policymaking acts of coor-
dinate branches. Second, consistent
with the related doctrine of official im-
12. The summaries of these cases are drawn
from Jerome Stevens Pharma., Inc. v. Food &
Drug Admin., 402 F.3d 1249, 1254–55
(D.C.Cir.2005).

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1034 707 FEDERAL SUPPLEMENT, 2d SERIES
munity, courts should not subject the
sovereign to liability where doing so
would inhibit vigorous decisionmaking
by government policymakers. Third,
in the interest of preserving public rev-
enues and property, courts should be
wary of creating huge and unpredictable
governmental liabilities by exposing the
sovereign to damage claims for broad
policy decisions that necessarily impact
large numbers of people. Framed in
different fashions, each of these themes
appears again and again, alone or in
combination, as a modern justification
for retaining a form of immunity, under
the general rationale that courts should
not ‘‘interfere’’ with government opera-
tions and policymaking.
Id. at 511 (emphasis added, internal foot-
notes omitted).
Notably absent from this rationale is
any mention of ‘‘fairness.’’ As explained in
National Un. Fire Ins. v. United States,
115 F.3d 1415 (9th Cir.1997):
Private actors generally must pay for
the harm they do by carelessness. The
government’s power to tax enables it,
better than any private actor, to perform
its conduct with reasonable care for the
safety of persons and property, and to
spread the cost over all the beneficiaries
if its conduct negligently causes harm.
Fairness might seem to suggest that the
government should be liable more
broadly than private actors. But at its
root, the discretionary function excep-
tion is about power, not fairness.
Id. at 1422.
As a result of these underlying policies
and principles, Plaintiffs are misguided
when they argue that ‘‘there is no over-
sight at all available to the taxpaying citi-
zens, as well as the nation, to insure that
the SEC does its job.’’ (Opp. at 15.) This
broad policy argument is unavailing.
IV. ANALYSIS AND DISCUSSION
A. RELEVANT LEGISLATIVE
HISTORY
It is often remarked that Congressional
intent is particularly relevant to the Fed-
eral Tort Claims Act because ‘‘no action
lies against the United States unless the
legislature has authorized it.’’ E.g., Dale-
hite v. United States, 346 U.S. 15, 30, 73
S.Ct. 956, 97 L.Ed. 1427 (1953) (collecting
cases). As a result, ‘‘the basic inquiry
concerning the application of the discre-
tionary function exception is whether the
challenged acts of a Government employ-
ee—whatever his or her rank—are of the
nature and quality that Congress intend-
ed to shield from tort liability.’’ United
States v. S.A. Empresa de Viacao Aerea
Rio Grandense (Varig Airlines), 467 U.S.
797, 813–814, 104 S.Ct. 2755, 81 L.Ed.2d
660 (1984) (emphasis added).
It is notable, then, that Congress, when
drafting and debating the Federal Tort
Claims Act, repeatedly and explicitly sug-
gested that the discretionary function ex-
ception was intended to apply to the SEC.
See Dalehite v. United States, 346 U.S. 15,
29 & n. 21, 73 S.Ct. 956, 97 L.Ed. 1427
(1953) (noting that this particular ‘‘para-
graph [ ] appears time and again’’ in the
legislative history). Congress explained
that the discretionary function exception
was:
designed to preclude application of the
bill to a claim against a regulatory agen-
cy, such as the Federal Trade Commis-
sion or the Securities and Exchange
Commission, based upon an alleged
abuse of discretionary authority by an
officer or employee, whether or not neg-
ligence is alleged to have been involved.
To take another example, claims based
upon an allegedly negligent exercise by
the Treasury Department of the black-
listing or freezing powers are also in-
tended to be excepted. The bill is not

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1035 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
intended to authorize a suit for damages
to test the validity of or provide a reme-
dy on account of such discretionary acts
even though negligently performed and
involving an abuse of discretion.
Dalehite, 346 U.S. at 29 n. 21, 73 S.Ct. 956
(quoting H.R.Rep. No. 2245, 77th Cong.,
2d Sess., p. 10; S.Rep.No. 1196, 77th
Cong., 2d Sess., p. 7; H.R.Rep. No. 1287,
79th Cong., 1st Sess., pp. 5–6; Hearings
before H.Com. on Judiciary on H.R. 5373
and H.R. 6463, 77th Cong., 2d Sess., p. 33);
see also Defs.’ Mot. at 10 & n. 29 (quoting
House Rep. 79–1287, at 5–6).
B. THE GOVERNMENT HAS SAT-
ISFIED ITS THRESHOLD BUR-
DEN BY IDENTIFYING STAT-
UTES, REGULATIONS, AND
CASES DISCUSSING THE SEC’S
GENERAL POWERS AND
DUTIES
[7] In its Motion, the Government sets
forth a number of general, broad princi-
ples governing the SEC’s duties and func-
tions. These legal assertions establish
that the alleged wrongs were done in the
course of the SEC’s exercise of its discre-
tion, both in terms of conducting its inves-
tigations and deciding whether or not to
bring enforcement proceedings. These
basic conclusions are supported by stat-
utes, regulations, and caselaw. Defendant
has therefore satisfied its threshold bur-
den under Gaubert of establishing that the
relevant statutes and regulations ‘‘allow[ ]
the employee[s] discretion.’’ Gaubert, 499
U.S. at 323, 111 S.Ct. 1267. Accordingly,
there is ‘‘a strong presumption’’ that the
alleged acts were ‘‘based on considerations
of public policy,’’ and Plaintiffs bear the
burden of rebutting this presumption. Id.
This section discusses the Government’s
threshold showing that its actions were
discretionary and are presumed to be sus-
ceptible to policy analysis. The following
section discusses Plaintiffs’ attempt to re-
but this strong presumption.
1. SEC’s Investigative Powers
Section 21 of the Securities and Ex-
change Act of 1934, codified at 15 U.S.C.
§ 78u, establishes the SEC’s investigatory
powers. The statute explicitly provides
discretion to the SEC:
The Commission may, in its discretion,
make such investigations as it deems
necessary to determine whether any
person has violated, is violating, or is
about to violate any provision of this
chapter, [or] the rules or regulations
thereunder, TTT and may require or
permit any person to file with it a state-
ment in writing, under oath or otherwise
as the Commission shall determine, as to
all the facts and circumstances concern-
ing the matter to be investigated. The
Commission is authorized in its discre-
tion, TTT to investigate any facts, condi-
tions, practices, or matters which it may
deem necessary or proper to aid in the
enforcement of such provisionsTTTT
15 U.S.C. § 78u(a)(1) (emphasis added).
Little discussion is necessary. The stat-
ute repeatedly uses permissive language
rather than mandatory language. The
SEC has discretion to decide both the
timing of when it ‘‘make[s] such investiga-
tions,’’ and the manner and scope of how
to ‘‘investigate any facts, conditions, prac-
tices, or matters,’’ whether through ‘‘a
statement in writing, under oath or other-
wise.’’ Id. (emphasis added). All of these
decisions are framed in permissive lan-
guage (‘‘[t]he Commission may TTT’’) and
the SEC is permitted to proceed ‘‘as it
deems necessary.’’ Id. In other words, the
statute is discretionary—the SEC retains
discretion over when and how to conduct
its investigations. This leads to a strong
presumption that the SEC’s actions were
discretionary. Gaubert, 499 U.S. at 324,
111 S.Ct. 1267; see also Vickers v. United
States, 228 F.3d 944, 951 (9th Cir.2000)
(‘‘[T]he discretionary function exception

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1036 707 FEDERAL SUPPLEMENT, 2d SERIES
protects agency decisions concerning the
scope and manner in which it conducts an
investigation so long as the agency does
not violate a mandatory directive.’’).
The SEC’s own regulations are similarly
discretionary. As explained in the SEC’s
formal policies regarding Enforcement Ac-
tivities, as summarized in 17 C.F.R.
§ 202.5:
Where, from complaints received from
members of the public, communications
from Federal or State agencies, exami-
nation of filings made with the Commis-
sion, or otherwise, it appears that there
may be violation of the acts adminis-
tered by the Commission or the rules or
regulations thereunder, a preliminary
investigation is generally made. In
such preliminary investigation no pro-
cess is issued or testimony compelled.
The Commission may, in its discretion,
make such formal investigations and au-
thorize the use of process as it deems
necessary to determine whether any
person has violated, is violating, or is
about to violate any provision of the
federal securities laws or the rules of a
self-regulatory organization of which the
person is a member or participantTTTT
17 C.F.R. § 202.5(a) (emphasis added).
This regulation does not require the SEC
to conduct its investigations in any particu-
lar manner; rather, the agency retains
broad discretion to decide how to conduct
its investigations.
In light of this statutory and regulatory
language, the courts have unanimously re-
jected challenges to the SEC’s use of its
investigatory powers. In a pre-FTCA
case, Justice Vinson, then a member of the
District of Columbia Court of Appeals,
wrote an opinion that, inter alia, granted
official immunity to members of the SEC
for their investigatory activities. Jones v.
Kennedy, 121 F.2d 40, 43–44 (D.C.Cir.
1941). In a terse discussion, the court
explained:
the carrying out of investigations and
the turning over of evidence to the At-
torney General for presentation to a
grand jury come under the authorized
duties of the Commission. And likewise,
plaintiff has not met, in these allega-
tions, the task of showing acts which fall
outside of the [SEC’s] immunity.
Id. at 43–44 (internal footnote omitted)
(emphasis added) (citing 15 U.S.C.
§§ 77h(e), 77s(c), 77t(b)).
Numerous subsequent courts have held
that the SEC is immune from liability for
its investigative actions. In Schmidt v.
United States, 198 F.2d 32 (7th Cir.1952),
the court applied the discretionary func-
tion exception to bar a claim that the SEC
was investigating a corporation and publi-
cizing its investigation for the improper
purpose of destroying the company. Id. at
33, 36. The court explained that the
SEC’s decision to institute an investigation
and conduct it in a particular manner ‘‘was
TTT clearly within the scope of its discre-
tionary authority’’ under the 1934 Ex-
change Act. Id. at 36. Nothing more was
said, and nothing more needed to be said.
The point was—and remains to this day—
‘‘perfectly clear [ ] under the terms of the
applicable statutes.’’ Id.
The same point has been stated in sub-
sequent cases including Sprecher v. Von
Stein, 772 F.2d 16, 18 (2d Cir.1985), and
other cases discussed infra, subsection 3.
2. SEC’s Enforcement Powers
The SEC likewise has discretion regard-
ing the use of its enforcement powers.
Under 15 U.S.C. § 78u(d)(1), the SEC has
discretion over decisions to seek an injunc-
tion against ongoing violations of the Ex-
change Act:
Whenever it shall appear to the Com-
mission that any person is engaged or is
about to engage in acts or practices
constituting a violation of any provision
of this chapter [or] the rules or regula-

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1037 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
tions thereunder, TTT it may in its dis-
cretion bring an action in the proper
district court of the United States TTT to
enjoin such acts or practicesTTTT
15 U.S.C. § 78u(d)(1) (emphasis added).
The SEC retains similar discretion re-
garding whether to seek monetary relief or
other injunctive relief. See § 78u(d)(3)
(‘‘the Commission may bring an action in a
United States district court to seek TTT a
civil penalty to be paid by the person who
committed such violation.’’) (emphasis add-
ed); § 78u(d)(5) (‘‘the Commission may
seek TTT any equitable relief that may be
appropriate or necessary for the benefit
of investors.’’) (emphasis added).
The regulations are similarly discretion-
ary. Again under 17 C.F.R. § 202.5:
After investigation or otherwise the
Commission may in its discretion take
one or more of the following actions:
Institution of administrative proceedings
looking to the imposition of remedial
sanctions, initiation of injunctive pro-
ceedings in the courts, and, in the case
of a willful violation, reference of the
matter to the Department of Justice for
criminal prosecution. The Commission
may also, on some occasions, refer the
matter to, or grant requests for access
to its files made by, domestic and for-
eign governmental authorities or foreign
securities authorities, self-regulatory or-
ganizations such as stock exchanges or
the National Association of Securities
Dealers, Inc., and other persons or enti-
ties.
17 C.F.R. § 202.5 (emphasis added).
Again, the courts are unanimous in hold-
ing that these statutory powers are discre-
tionary. In SEC v. Research Automation
Corp., 521 F.2d 585, 590 (2d Cir.1975), the
court summarily dismissed a defendant’s
FTCA-based counterclaim because the
SEC had discretion ‘‘to institute and main-
tain the present [enforcement] action.’’
The same conclusion was reached in
S.E.C. v. Better Life Club of America, Inc.,
995 F.Supp. 167, 180 (D.D.C.1998), aff’d,
203 F.3d 54 (D.C.Cir.1999), cert. denied
sub nom. Taylor v. S.E.C., 528 U.S. 867,
120 S.Ct. 165, 145 L.Ed.2d 140 (1999). In
that case, a defendant in an SEC enforce-
ment action brought counterclaims for tor-
tious interference with contract and inten-
tional infliction of emotional distress on
account of its enforcement actions. The
court dismissed these counterclaims under
the discretionary function exception be-
cause ‘‘[i]nvestigation and prosecution un-
der § 21 of the Securities Acts is discre-
tionary; therefore the United States is
immune to these claims.’’ Id. at 180 (cit-
ing Board of Trade of City of Chicago v.
SEC, 883 F.2d 525, 531 (7th Cir.1989)).
3. The Unanimous Precedent is Sup-
ported by the Justifications of the
Discretionary Function Exception
The Better Life Club court relied on an
Administrative Procedures Act case decid-
ed by the Seventh Circuit, Board of Trade
v. SEC, 883 F.2d 525, 531 (7th Cir.1989).
In Board of Trade, the court refused to
exercise jurisdiction over two futures ex-
changes’ claims that SEC had abused its
discretion by issuing a no-action order and
refraining from prosecuting a competing
non-exchange ‘‘system’’ that acted as a
clearing agency for options trades. The
court explained that the ‘‘[r]efusal to pros-
ecute is a classic illustration of a decision
committed to agency discretion,’’ and un-
der the Securities Exchange Act, ‘‘[i]nves-
tigation and prosecution under § 21 are
discretionary, not mandatory.’’ 883 F.2d
at 530–31. Judge Easterbrook explained
at length the reasons why these decisions
are discretionary and involve policy judg-
ment:
Doing nothing may be the most con-
structive use of the Commission’s re-
sources. Congress gives the SEC a

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1038 707 FEDERAL SUPPLEMENT, 2d SERIES
budget, setting a cap on its personnel.
With limited numbers of staff-years, the
Commission must enforce several com-
plex statutes. To do this intelligently
the Commissioners must assign priori-
ties. Prosecuting the System means
less time for something else—investigat-
ing claims of fraud in issuing new stock
or conducting a takeover contest, resolv-
ing disputes under the Investment Com-
pany Act, and so on. Agencies may find
it worthwhile to give short shrift to a
particular claim if the aggrieved party
can file its own suit (as the [plaintiff]
futures markets may), for turning the
subject over to private litigation frees up
time without necessarily diminishing the
enforcement of the statute. Yet even
when the aggrieved party cannot vindi-
cate its own rights, as with the National
Labor Relations Act—indeed, even when
the person complaining about failure to
prosecute is a defendant whose business
is going down the tubes—decisions
about the best use of the staff’s time are
for the prosecutor’s judgment.
Courts cannot intelligently supervise
the Commission’s allocation of its staff’s
time, because although judges see clear-
ly the claim the Commission has de-
clined to redress, they do not see at all
the tasks the staff may accomplish with
the time released. Agencies must com-
pare the value of pursuing one case
against the value of pursuing another;
declining a particular case hardly means
that the SEC’s lawyers and economists
will go twiddle their thumbs; case-ver-
sus-case is the daily tradeoff. Judges
compare the case at hand against a rule
of law or an abstract standard of dili-
gence and do not see the opportunity
costs of reallocations within the agency.
That fundamental difference in the per-
spectives of the two bodies is why agen-
cies (and other prosecutors) rather than
courts must make the decisions on pur-
suing or dropping claims. Resource al-
location is not a task governed by ‘‘law’’.
It is governed by budgets and opportu-
nities. Agencies ‘‘take Care that the
Laws be faithfully executed’’ (Art. II,
§ 3) by doing the best they can with the
resources Congress allows them.
Judges could make allocative decisions
only by taking over the job of planning
the agency’s entire agenda, something
neither authorized by statute nor part of
their constitutional role.
Id. at 531 (internal citations omitted).
Thus, even if the plain language of the
Securities Exchange Act were insufficient
to bar Plaintiffs’ claims, Judge Easter-
brook’s policy analysis explains the various
reasons that the discretionary function ex-
ception applies to the SEC’s actions in the
present case. Little more needs to be
said, except that numerous other court
decisions support this conclusion.
A large number of courts have held that
SEC decisions are unreviewable under the
FTCA and/or the Administrative Proce-
dures Act. See, e.g., Block v. SEC, 50 F.3d
1078, 1084 (D.C.Cir.1995) (rejecting an Ad-
ministrative Procedures Act action seeking
to compel SEC action, because ‘‘[s]o far, it
appears, the Commission has found [its
chosen means] sufficient to induce compli-
ance with the law. That the petitioners
prefer a different means of enforcement is
irrelevantTTTT [T]he agency alone, and nei-
ther a private party nor a court, is charged
with the allocation of enforcement re-
sources.’’); Sprecher v. Von Stein, 772
F.2d 16, 18 (2d Cir.1985) (claims arising
out of agency’s investigative operations are
barred by FTCA immunity); Sprecher v.
Graber, 716 F.2d 968, 975 (2d Cir.1983)
(claims arising out of agency’s investiga-
tive operations are barred by common law
immunity); Treats Intern. Ents., Inc. v.
S.E.C., 828 F.Supp. 16, 18–19 (S.D.N.Y.
1993) (SEC’s investigative decisions are
unreviewable under Administrative Proce-
dures Act); Standifer v. SEC, 542

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1039 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
F.Supp.2d 1312, 1318 (N.D.Ga.2008) (dis-
missing FTCA claims against SEC for nu-
merous reasons, including the fact that
‘‘[t]he SEC is granted broad discretion by
Congress to investigate possible violations
of the securities laws and to determine
whether to bring civil or criminal actions
to remedy those violations.’’); Leytman v.
New York Stock Exchange, No. 95 CV 902,
1995 WL 761843, at *3 (E.D.N.Y. Dec. 6,
1995) (‘‘Plaintiff [ ] seeks damages from
the Commission for its failure to investi-
gate his claims about the [New York
Stock] Exchange’s alleged misconductTTTT
The Securities Exchange Act of 1934 pro-
vides that stock exchange records are sub-
ject to investigation by the [Securities and
Exchange] Commission ‘as the Commis-
sion TTT deems necessary or appropriate.’
15 U.S.C. 78q(b). The decision of whether
or not to investigate a stock exchange is
left in the discretion of the Commission.
[Under the FTCA,] [e]ven if the Commis-
sion abuses that discretion, the court may
not intervene.’’); see also Thomas Lee
Hazen, 6 The Law of Securities Regula-
tion, § 16.2, at 213 n. 313 (6th ed. 2010
supp.) (collecting cases involving SEC and
non-governmental regulatory bodies).
In addition, courts have repeatedly held
in other contexts that the conduct of regu-
latory investigations are immune from
FTCA liability unless there are mandatory
directives that limit the investigators’ dis-
cretion to determine both the scope and
the manner of the investigation. See, e.g.,
Alfrey v. United States, 276 F.3d 557, 565–
66 (9th Cir.2002) (prison guards had dis-
cretion to determine how thoroughly to
search prisoners’ cells); Sloan v. U.S.
Dept. of Housing and Urban Devel., 236
F.3d 756, 762 (D.C.Cir.2001) (‘‘[T]he sifting
of evidence, the weighing of its signifi-
cance, and the myriad other decisions
made during investigations plainly involve
elements of judgment and choice.’’); Vick-
ers v. United States, 228 F.3d 944, 951 (9th
Cir.2000) (stating that ‘‘the discretionary
function exception protects agency deci-
sions concerning the scope and manner in
which it conducts an investigation so long
as the agency does not violate a mandatory
directive.’’); Gen. Dynamics Corp. v. Unit-
ed States, 139 F.3d 1280, 1283–1284 (9th
Cir.1998) (government was immune under
the discretionary function exception where
its auditors’ allegedly negligent investiga-
tions provided the factual basis for the
prosecutor’s discretionary decision to pros-
ecute); Sabow v. United States, 93 F.3d
1445, 1452 (9th Cir.1996) (government was
immune under the discretionary function
exception for its investigators’ allegedly
tortious investigation where ‘‘the guide-
lines promulgated by the [agency] in its
investigative manual were meant to be fol-
lowed at the discretion of [the agency’s]
investigating officers in light of the specific
circumstances surrounding a particular in-
vestigation.’’); Fisher Bros. Sales, Inc. v.
United States, 46 F.3d 279, 282 (3d Cir.
1995) (en banc) (government was immune
under the discretionary function exception
where laboratory technicians’ allegedly
negligent investigations done pursuant to
mandatory guidelines provided the factual
basis for the Food and Drug Administra-
tion to seize allegedly tainted fruit).
The weight and logic of this caselaw
leads directly to the conclusions proposed
by the Government: the decisions of
whether and how to conduct investiga-
tions and enforcement actions are firmly
lodged in the SEC’s discretion.
4. Procedural Effect of SEC’s
Statutory and Regulatory
Discretionary
As explained in Gaubert, ‘‘[w]hen estab-
lished governmental policy, as expressed
or implied by statute, regulation, or agency
guidelines, allows a Government agent to
exercise discretion, it must be presumed
that the agent’s acts are grounded in poli-
cy when exercising that discretion.’’ 499
U.S. at 324, 111 S.Ct. 1267. Because the

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1040 707 FEDERAL SUPPLEMENT, 2d SERIES
Government has satisfied this threshold
burden the burden shifts to Plaintiffs to
identify particular acts and decisions that
were either (1) mandatorily prescribed by
statute, regulation, or policy, or (2) were
not ‘‘susceptible to policy analysis.’’ Id. at
323, 325, 111 S.Ct. 1267.
C. PLAINTIFFS’ BROAD ALLEGA-
TIONS OF MISCONDUCT ARE
UNAVAILING
At various points in their Complaint and
moving papers, Plaintiffs assert that the
SEC violated various unidentified ‘‘[p]oli-
cies and practices,’’ and ‘‘common-sense.’’
(E.g., Compl. ¶ 12 (alleging that the SEC
staff ‘‘fail[ed] to follow the SEC’s clear
policies and practices’’)).13
To the extent that Plaintiffs rely on
conclusory allegations about ‘‘policies,’’
‘‘practices,’’ and ‘‘common-sense,’’ they
have failed to rebut Defendant’s threshold
showing. Broad allegations regarding un-
defined ‘‘policies and practices’’ are insuffi-
cient under clear Ninth Circuit precedent.
In the recent decision in Doe v. Holy See,
557 F.3d at 1084–85, the Ninth Circuit
examined the adequacy of a plaintiff’s
pleadings under the discretionary function
exception as articulated by the Supreme
Court in Gaubert.14 The court held that
the complaint failed to adequately allege
the existence of non-discretionary duties
imposed on the government’s officials be-
cause it only ‘‘refer[red] vaguely TTT to the
[defendant’s] ‘policies, practices, and pro-
cedures.’ ’’ Id. at 1084 (quoting com-
plaint). The court explained that ‘‘no-
where does [plaintiff] allege the existence
of a policy that is ‘specific and mandato-
ry’ on the [defendant]. He does not state
the terms of this alleged policy, or describe
any documents, promulgations, or orders
embodying it.’’ Id. (quoting Kennewick
Irrig. Dist. v. United States, 880 F.2d
1018, 1026 (9th Cir.1989)). In addition, the
alleged harmful acts were plainly suscepti-
ble to policy judgment, and under Circuit
precedent, were ‘‘the type of discretionary
judgments that the [discretion function ex-
ception] was designed to protect.’’ Id. Be-
cause of these glaring inadequacies, the
court held that the discretionary function
exception applied.
Like the plaintiff in Doe v. Holy See,
Plaintiffs in this case largely fail to identify
any mandatory ‘‘policies’’ or ‘‘practices’’
that were violated in this case. (Cf. infra
Part IV.C.) Plaintiffs’ ‘‘labels and conclu-
sions’’ are insufficient to satisfy the plead-
ing requirements of Fed.R.Civ.P. 8(a)(2).
See Iqbal, 129 S.Ct. at 1949 (quoting
Twombly, 550 U.S. 544, 127 S.Ct. 1955).
Likewise, Plaintiffs have wholly failed to
identify any of the SEC’s actions that were
not ‘‘susceptible to policy analysis.’’ See
Gaubert, 499 U.S. at 325, 111 S.Ct. 1267
(emphasis added). Their Complaint and
their moving papers do not contain any
attempt to rebut the Government’s prelim-
inary showing that the SEC retained dis-
cretion to decide when to investigate, how
to investigate, and whether or not to take
enforcement actions. Plaintiffs attempt to
recharacterize the nature of Defendant’s
burden, and argue that the Government
13. Plaintiffs explain that ‘‘ ‘policies’ refer[s] to
formal or informal policies, rules, standards,
guidelines, procedures, codes, routines or oth-
er directives implemented by the SEC to gov-
ern the conduct of its agents.’’ (Compl. ¶ 4 n.
4.) ‘‘ ‘Practices’ refers to common-sense stan-
dards of conduct required of SEC agents in
the course of exercising their duties with rea-
sonable due care, regardless of whether the
SEC had promulgated any formal or informal
policies with respect to that conduct.’’ (Id.)
Under Gaubert, Plaintiffs’ ‘‘practices’’ are
clearly an inadequate basis for showing a
mandatory SEC duty.
14. Technically, Doe v. Holy See involves the
Foreign Sovereign Immunities Act rather
than the FTCA, but, as noted supra, the court
solely examined FTCA caselaw.

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1041 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
bears the burden of showing that the
SEC’s actions were susceptible to policy
analysis. Plaintiffs are misguided. The
Government has in fact satisfied its bur-
den: it has identified specific and discre-
tionary statutes, regulations, and caselaw-
based policy arguments. See Doe v. Holy
See, 557 F.3d at 1084–85 (where defendant
identifies statutes, regulations, and case-
law conferring policy-based discretion on
actor, burden shifts to plaintiff to identify
allegations to rebut this showing). Plain-
tiffs have failed to rebut Defendant’s show-
ing.
In light of the Government’s showing
that the SEC retains broad discretion to
regulate securities markets through formal
and informal means (see supra Part III.A),
the Government has sufficiently satisfied
its threshold burden of showing that the
relevant investigative and enforcement de-
cisions were discretionary and/or suscepti-
ble to policy judgments. Under Gaubert,
this threshold showing creates a ‘‘strong
presumption’’ that the discretionary func-
tion exception is satisfied. Gaubert, 499
U.S. at 324, 111 S.Ct. 1267. Plaintiffs’
conclusory allegations regarding ‘‘policies
and practices’’ fail to rebut this presump-
tion. See Doe v. Holy See, 557 F.3d at
1084–85.
D. PLAINTIFFS’ ARGUMENTS
ABOUT MANDATORY POLI-
CIES ARE UNAVAILING
In an oversized sur-reply,15 Plaintiffs at-
tempt to satisfy their burden of rebuttal
by identifying five purportedly mandatory
duties imposed on the SEC and its staff.
These are: sharing information; obtaining
trading records and other information
from third parties; hiring, training, and/or
deploying qualified staff members; avoid-
ing improper personal motivations; and
engaging in various administrative case-
management tasks.
As Plaintiffs themselves point out in
their sur-reply, ‘‘it is important to specifi-
cally identify the allegations of the Com-
plaint relating to the SEC’s violation of
mandatory policies.’’ (Surreply at 5.) Yet
Plaintiffs’ factual allegations (which pur-
port to incorporate the Report in its en-
tirety) fail to support these conclusions.
Plaintiffs almost wholly fail to allege that
SEC’s agents violated any mandatory
duties, and where Plaintiffs’ allegations
provide an inference that such mandatory
duties existed, Plaintiffs’ arguments are
defeated by the holding in General Dy-
namics, 139 F.3d at 1284–85. Plaintiffs
therefore have failed to overcome the pre-
sumption that the SEC’s investigative and
enforcement decisions were discretionary.
Accordingly, Plaintiffs’ Complaint must be
dismissed for lack of subject matter juris-
diction.
1. Duty to Share Information
Plaintiffs’ Complaint alleges that SEC
teams failed to coordinate their investiga-
tions among themselves and with the Na-
tional Association of Securities Dealers
and Chicago Board of Options Exchange.
(Surreply at 6, citing Compl. ¶¶ 37, 62, 63,
78, 86, 103, 105, 123, 128, 130, 131.) Ac-
cording to Plaintiffs, these ‘‘negligent fail-
ures to communicate TTT were prohibited
by law.’’ (Id.)
15. The Court never granted Plaintiffs leave to
file a sur-reply. Nor did the Court grant
Plaintiffs leave to file an oversized brief. In
addition, the sur-reply goes far beyond the
scope of the arguments raised in the Govern-
ment’s Reply. Even if the Court had granted
Plaintiffs leave to file an oversized sur-reply,
Plaintiffs would only have been allowed to
address Defendant’s specific arguments in the
Reply. Plaintiffs’ sur-reply is therefore proce-
durally improper.
It is therefore well within the Court’s dis-
cretion to strike the surreply. However,
while the Court would ordinarily strike such
an improper filing, the Court will consider the
merits of Plaintiffs’ arguments in order to
foreclose certain of these claims in future
proceedings.

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1042 707 FEDERAL SUPPLEMENT, 2d SERIES
Plaintiffs have failed to support their
assertions. Plaintiffs’ conclusory allega-
tions fail to establish that SEC examiners
were guided by any mandatory duties re-
quiring them to share information and co-
ordinate their activities.
Plaintiffs argue that Section 17 of the
Securities Exchange Act of 1934, codified
at 15 U.S.C. § 78q, imposes mandatory
duties requiring SEC staff to share infor-
mation. The statute reads:
The Commission and the examining au-
thorities 16 shall share such information
[regarding securities exchanges and
their members, brokers and dealers, rat-
ings organizations, and clearing agen-
cies], including reports of examinations,
customer complaint information, and
other nonpublic regulatory information,
as appropriate to foster a coordinated
approach to regulatory oversight of bro-
kers and dealers that are subject to
examination by more than one examin-
ing authority.
15 U.S.C. § 78q(k)(2) (emphasis added).
The statute clearly provides for SEC
discretion. The mandatory ‘‘shall’’ is mod-
ified by the discretionary ‘‘as appropriate.’’
See Sabow, 93 F.3d at 1452 (distinguishing
between ‘‘suggestive (‘should’) [and] man-
datory (‘must’) terms’’) (collecting cases).
The statute itself describes the nature of
‘‘appropriate’’ information-sharing: the in-
formation-sharing must be ‘‘appropriate to
foster a coordinated approach to regula-
tory oversight.’’ 15 U.S.C. § 78q(k)(2)
(emphasis added). When the SEC is
tasked with making decisions to ‘‘foster a
coordinated approach to regulatory over-
sight,’’ these decisions are inherently
‘‘grounded in social, economic, and political
policy.’’ Gaubert, 499 U.S. at 323, 111
S.Ct. 1267. Accordingly, the discretionary
function exception applies to information-
sharing under § 78q(k)(2).
The legislative history supports this con-
clusion. This particular subsection (for-
merly labeled subsection (i)) was added to
the statute in 1996 by the National Securi-
ties Markets Improvement Act of 1996,
Pub.L. 104–290, § 108. It is instructive to
contrast the statute’s final language with
the language of the original House bill.
The House’s bill included a complex set of
reporting and coordination requirements
for self-regulatory organizations. See
H.R. Rep. 104–622, 104th Cong., 2d Sess.,
1996 U.S.C.C.A.N. 3877, 3877 (1996). The
original bill required, inter alia: annual
meetings between the SEC and self-regu-
latory organizations, § 108(a)(i)(2), period-
ic standardized reporting requirements for
the SEC and self-regulatory organizations,
§ 108(a)(i)(3), annual evaluations by an
SEC-created panel, § 108(a)(i)(7), and an-
nual reports to Congress, § 108(a)(i)(8).
Id. These requirements were mandatory,
not discretionary: the SEC and the self-
regulatory organizations had no flexibility
in implementing these clear congressional
directives.
However, after some legislative wran-
gling, see H.R. Conf. Rep. 104–864, 1996
U.S.C.C.A.N. 3920, 3920 (1996), the
House–Senate conference committee
stripped all of the above-mentioned re-
quirements and left intact only a few gen-
eralized requirements.17 The central pur-
16. ‘‘For purposes of this subsection, the term
‘examining authority’ means a self-regulatory
organization registered with the Commission
under this chapter (other than a registered
clearing agency) with the authority to exam-
ine, inspect, and otherwise oversee the activi-
ties of a registered broker or dealer.’’ 15
U.S.C. § 78q(k)(5).
17. As part of the compromise, the revised law
required that the SEC coordinate its activities
with the self-regulatory organizations (where-
as the old bill merely required the self-regula-
tory organizations to coordinate their activi-
ties). Compare 15 U.S.C. § 78q(k)(2) (‘‘The
Commission and the examining authorities
shall share TTT’’) with H.R. 3005,

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1043 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
pose of the final bill, as explained by the
conference committee, was to streamline
regulation between federal and state au-
thorities. id. at 3920–21. The purpose of
the remaining portions of the bill—appar-
ently including § 108—was ‘‘to eliminate
duplication, promote efficiency and protect
investors.’’ Id. at 3921. This broad lan-
guage sets forth three general policy goals,
the balancing of which requires the SEC
to make inherently discretionary judg-
ments. See also Milton R. Schroeder, The
Law of Regulation of Financial Institu-
tions, ¶ 8.06[1] (2009 update) (‘‘The Act TTT
calls for information sharing between au-
thorities and the elimination of unneces-
sary and burdensome duplication in the
examination process.’’); Rutherford B.
Campbell, Jr., Blue Sky Laws and the
Recent Congressional Preemption Failure,
22 J. Corp. L. 175, 204 n. 156 (1997) (‘‘The
Act TTT mandates that federal authorities
attempt to eliminate duplication and en-
hance coordination and cooperation with
the states as concerns the regulation of
brokers.’’).
In short, the law cited by Plaintiffs is
purely discretionary. Under the well-es-
tablished requirements of the discretion-
ary function exception, this Court cannot
second-guess the SEC’s failure to simulta-
neously accomplish all three of these com-
peting policy goals set out by Congress.
The goals require policy judgment and re-
source allocation, and are therefore subject
to the discretionary function exception.
a. Plaintiffs’ factual allegations
In addition to these clear statutory
rules, Plaintiffs’ Complaint expressly alleg-
es that formal policies did not exist. The
Report (which is incorporated into the
Complaint by reference) quotes one staff
member as stating that ‘‘there was no rule
or policy about TTT information-sharing at
[the investigative] level between offices.’’
(Report at 133, 198, quoting testimony of
Eric Swanson.) Taking this allegation as
true, Plaintiffs’ Complaint directly contra-
dicts the conclusory assertions in their sur-
reply.
b. Summary re: duty to
share information
Plaintiffs have therefore failed to meet
their burden of identifying either a manda-
tory duty requiring the SEC to share in-
formation with other regulators, or plausi-
ble allegations that the SEC’s decisions
regarding information-sharing were not
susceptible to policy analysis. The SEC
retained discretion to determine the man-
ner and scope of its investigations. See
Vickers, 228 F.3d at 951 (‘‘[T]he discretion-
ary function exception protects agency de-
cisions concerning the scope and manner
in which it conducts an investigation so
long as the agency does not violate a man-
datory directive.’’).
2. Failing to Request Materials
from Third Parties
Plaintiffs argue that the SEC violated
‘‘formal SEC policies’’ and ‘‘basic auditing
principles’’ by ‘‘repeatedly fail[ing] to re-
quest materials from third parties to sub-
stantiate Madoff’s claimed trading activi-
ty.’’ (Surreply at 8, citing Compl. ¶¶ 34–
36, 67, 74, 77, 101, 143.) Again, Plaintiffs
fail to identify any of the ‘‘formal SEC
policies’’ upon which they rely. But Plain-
tiffs insist that ‘‘SEC staffers themselves
considered it mandatory [to determine if
Madoff was actually making the trades he
purported to be making], given one staf-
fer’s characterization of the failure to do so
as ‘asinine.’ ’’ (Surreply at 10, quoting
Compl. ¶ 77.)
Plaintiffs’ arguments are not supported
by their allegations. It is unclear why an
SEC staff member’s use of the word ‘‘asi-
nine’’ provides evidence of an SEC policy.
§ 108(a)(4)(A) in H.R. Rep. 104–622 (‘‘The examining authorities shall share TTT’’).

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1044 707 FEDERAL SUPPLEMENT, 2d SERIES
‘‘Asinine’’ means ‘‘unintelligent, stupid, sil-
ly, [or] obstinate.’’ Webster’s Third New
International Dictionary 128 (1981). ‘‘As-
inine’’ does not mean that a person has
violated a non-discretionary legal duty;
nor does ‘‘asinine’’ mean that the person
has made a decision that is not susceptible
to policy judgment.
Plaintiffs fail to identify any other alle-
gations that state or even imply the exis-
tence of mandatory duties to obtain rec-
ords from third parties. In fact, the
Complaint is replete with factual allega-
tions suggesting that there were no SEC
policies regarding requesting information
from third parties. The Report quotes a
former SEC staff member as stating that
the SEC ‘‘always’’ obtained Depository
Trust Company statements ‘‘from the
firm’’ being investigated rather than from
the Depository Trust Company itself.
(Ex. A at 48, quoting testimony of Dem-
etrios Vasilakis, emphasis added.) The
Report also quotes a supervisor as stating
that ‘‘most of the time we do not send out
[requests for trading] confirmations and
do asset verification.’’ (Ex. A at 206,
quoting testimony of Robert Sollazzo.)
As a result of these and other statements,
the Report explained it was ‘‘common
practice’’ to rely on the firm under inves-
tigation, (Ex. A at 48), and that ‘‘it was
not unusual for [examiners] to rely exclu-
sively on records and data produced by
the’’ firm being investigated. (Ex. A at
98, emphasis added; see also Ex. A at 191
(noting that ‘‘it was not normal practice in
the exam program to reach out to enti-
ties’’ that centrally cleared and settled
trades).)
Because Plaintiffs’ Complaint attempts
to incorporate the Report in its entirety,
Plaintiffs therefore allege that there was
an absence of mandatory duties requiring
SEC staff to use specific investigative
techniques. Although it may have been
good practice for the SEC to follow up
with third parties, it was not required by
mandatory SEC policies. (See Compl.
¶ 35, citing Ex. A, at 290 n. 202.)
Plaintiffs have therefore failed to plead
facts that overcome the discretionary func-
tion exception. The statutes, regulations,
and caselaw discussed supra establish be-
yond peradventure that the SEC retained
full discretion to determine the manner
and scope of its investigation. See Vick-
ers, 228 F.3d at 951 (‘‘[T]he discretionary
function exception protects agency deci-
sions concerning the scope and manner in
which it conducts an investigation so long
as the agency does not violate a mandatory
directive.’’). Plaintiffs’ allegations fail to
rebut this presumption, by identifying ei-
ther a formal mandatory duty or a specific
decision that was not susceptible to policy
analysis.
3. Assigning Unqualified Staff
Members to Investigative
Teams
Plaintiffs argue that ‘‘several SEC staf-
fers were inexcusably unqualified for their
positions,’’ and that the SEC ‘‘assigned [ ]
staffers who had no understanding of secu-
rities transactions, and were otherwise un-
qualified, to the Madoff investigations.’’
(Surreply at 8, citing Compl. ¶¶ 32, 37, 46,
61–64, 67, 88–89, 100, 118, 126, 132, 134.)
[8] It is well-established that ‘‘employ-
ment, supervision and training’’ decisions
‘‘fall squarely within the discretionary
function exception.’’ Nurse v. United
States, 226 F.3d 996, 1001 (9th Cir.2000);
see also Doe v. Holy See, 557 F.3d at 1084
(‘‘the decision of whether and how to retain
and supervise an employee TTT [is] the
type of discretionary judgments that the
exclusion was designed to protect. We
have held the hiring, supervision, and
training of employees to be discretionary
acts.’’); Gager v. United States, 149 F.3d
918 (9th Cir.1998) (‘‘The [postal service’s]
decision not to provide universal training

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1045 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
and supervision in mail bomb detection
involved judgment or choice grounded in
social, economic, and political policy.’’).
Plaintiffs have failed to identify any alle-
gations that would bring their case outside
the purview of the Ninth Circuit’s general
caselaw on this question. Accordingly,
Defendant has satisfied its burden of
showing that the relevant decisions fall
within the discretionary function exception,
and Plaintiffs have not alleged any facts to
the contrary.
4. Staff Members’ Personally
Motivated Acts
Plaintiffs argue that SEC ‘‘staffers [ ]
acted out of personal animus, unfounded
fear of individual liability, and improper
deference to Madoff on account of his rep-
utation,’’ and that ‘‘one staffer ignored a
whistleblower out of spite.’’ (Surreply at
8, citing Compl. ¶¶ 23, 97–99, 119, 121–22.)
All of these assertions strike at the
manner in which the SEC conducted its
investigations. As noted repeatedly in this
Order, the SEC retained discretion to
make policy-based decisions about the
manner and scope of its investigations.
See 15 U.S.C. § 78u(a)(1) (permitting SEC
to decide ‘‘as it deems necessary’’ how to
‘‘investigate any facts, conditions, prac-
tices, or matters,’’ whether through ‘‘a
statement in writing, under oath or other-
wise.’’); see also Vickers, 228 F.3d at 951
(‘‘[T]he discretionary function exception
protects agency decisions concerning the
scope and manner in which it conducts an
investigation so long as the agency does
not violate a mandatory directive.’’).
Plaintiffs’ allegations, taken as true, at
most establish that the SEC staff abused
its discretion when conducting investiga-
tions into Madoff’s operations. However,
the FTCA clearly states that the discre-
tionary function applies ‘‘whether or not
the discretion involved be abused.’’ 28
U.S.C. § 2680(a). In addition, Supreme
Court precedent requires this Court to
examine ‘‘the nature of the actions taken
and [ ] whether they are susceptible to
policy analysis,’’ not ‘‘the agent’s subjec-
tive intent in exercising the discretion
conferred by statute or regulation.’’ Gau-
bert, 499 U.S. at 324, 111 S.Ct. 1267 (em-
phasis added). Accordingly, the SEC
staff’s subjective reasons for deciding how
to investigate Madoff are irrelevant to the
present inquiry.18
Furthermore, the relevant question is
not, as Plaintiffs suggest, whether the
agents’ activities were actually ‘‘grounded
in any legitimate policy considerations.’’
(Surreply at 9.) Rather, the question is
whether the agents’ activities were suscep-
tible to policy analysis. See Gaubert, 499
U.S. at 324, 111 S.Ct. 1267; Terbush, 516
F.3d at 1129. Investigative decisions are
inherently susceptible to policy analysis,
and Plaintiffs fail to identify any mandato-
ry laws, regulations, or policies that pre-
scribe a specific course of action for the
staff to follow when conducting investiga-
tions. Accordingly, these decisions are
subject to the discretionary function excep-
tion.
5. Failing to Follow Case–
Management Procedures
Plaintiffs next argue that the SEC ‘‘vio-
lated its own internal policies’’ regarding
case-management by doing the following:
(1) ‘‘failing to obey rules regarding the
filing of reports and the use of the SEC’s
STARS [Super Tracking and Reporting
System] computer system,’’ (2) failing to
consult the Super Tracking and Reporting
18. To the extent that SEC staff members were
truly acting for personal purposes, such activ-
ities would not constitute a ‘‘negligent or
wrongful act or omission of any employee of
the Government while acting within the scope
of his office or employment,’’ and the FTCA
would not provide an avenue for recovery.
28 U.S.C. § 1346(b)(1) (emphasis added).

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1046 707 FEDERAL SUPPLEMENT, 2d SERIES
System database before beginning exami-
nations, (3) ‘‘fail[ing] to submit Matter Un-
der Inquiry [ ] reports with respect to TTT
open investigations,’’ and (4) failing to file
case-opening and case-closing reports.
(Surreply at 7.)
Plaintiffs have adequately alleged that
the SEC teams failed to conduct each of
these tasks at one time or another. Plain-
tiffs have not, however, adequately alleged
that these tasks were mandatory or were
not otherwise susceptible to policy judg-
ment. Because the SEC staff had broad
discretion to determine how to conduct its
investigations, see supra Part IV.B, Plain-
tiffs bear the burden of identifying plausi-
ble allegations that non-discretionary
duties were imposed on the investigators.
See, e.g., Sabow, 93 F.3d at 1452–53 (close-
ly examining Naval Investigative Ser-
vice/Judge Advocate General investigation
manuals to determine whether investiga-
tors were obligated to conduct investiga-
tions in particular manner); Alfrey v.
United States, 276 F.3d 557, 563 (9th Cir.
2002) (holding that prison guard’s failure
to search a computer database was part of
discretionary investigatory decision where
there was no policy requiring such a
search to be conducted); cf. Franklin Sav.
Corp. v. United States, 180 F.3d 1124,
1132–33 (10th Cir.1999) (agency not im-
mune where its employees failed to pre-
pare mandatory case memoranda; howev-
er, plaintiff’s claims were dismissed on the
merits because no injury flowed from the
failure to prepare the memoranda). Plain-
tiffs have not met their burden.
a. Factual Allegations
In May 2003, the Washington-based Of-
fice of Compliance Inspections and Exami-
nations received a tip and referred the
matter to a team in the Broker–Dealer
section. In December 2003, the Washing-
ton team received a second tip and opened
its investigation into Madoff. According to
Plaintiffs, the team failed to file case-open-
ing report in the STARS computer system.
(Compl. ¶ 80.) There is one allegation
suggesting that case-opening report is
mandatory: the Report quotes a supervi-
sor’s statement that the staff members
were ‘‘supposed to’’ enter their case-open-
ing ‘‘information into the tracking system.’’
(Ex. A at 132, quoting McCarthy testimo-
ny.) The Washington team also failed to
follow its case-planning memo. (Compl.
¶ 69.) There are no factual allegations,
however, that there is a mandatory duty to
follow a case-planning memorandum.
In April 2004, the Washington team
closed its investigation and failed to file a
case-closing memorandum. (Compl. ¶¶ 78,
80.) There is one allegation that the case-
closing memo may have been mandatory:
the Report quotes a supervisor’s statement
that ‘‘[t]ypically, staff is supposed to—
when they finish an exam[ination] they’re
supposed to close it out and I think there
should have been a close-out memo is my
understanding.’’ (Compl. ¶ 78 & n. 15,
quoting Ex. A at 136 (quoting McCarthy
testimony).)
At the same time that the Washington
team closed its investigation (April 2004),
the first New York enforcement team re-
ceived a tip, and in December 2004 the
New York team opened its investigation.
(Compl. ¶ 86.) This team failed to draft a
planning memorandum. (Compl. ¶¶ 87,
108.) Plaintiffs state in a conclusory fash-
ion that there was an SEC ‘‘policy or
practice’’ requiring such a memorandum,
but support this assertion by citing to a
factual statement in the Report that
quotes staff members saying that there
was not such a policy at the time of the
investigation. (Compl. ¶ 87, citing Ex. A
at 166.)
The New York team failed to consult the
STARs computer system to see if any
prior case-opening reports had been filed.
(Compl. ¶¶ 103, 108.) There is no specific

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1047 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
allegation that there is a mandatory duty
to check the computer system; however,
Plaintiffs allege that SEC policy required
that ‘‘there should never be two examina-
tions of the same entity being conducted at
the same time without both teams being
aware of each other’s examination.’’
(Compl. ¶ 103, quoting Ex. A at 132.) In
the Ninth Circuit, the word ‘‘should’’ is
generally viewed as suggestive rather
than mandatory, see, e.g., Sabow, 93 F.3d
at 1452, and a person’s subjective belief
that something ‘‘should’’ be done is inade-
quate evidence that there is ‘‘in fact [a]
mandatory [duty] under some federal reg-
ulation or [internal] policy.’’ Alfrey, 276
F.3d at 563. However, viewing this quota-
tion in the light most favorable to Plain-
tiffs, there may be a plausible inference
that there was a mandatory policy to check
the STARs computer system or that the
decision to check the STARs computer was
not susceptible to policy analysis. (See
surreply at 12, 25.) Plaintiffs therefore
allege that the Washington and first New
York teams violated internal policies
and/or made decisions that were not sus-
ceptible to policy judgment. These acts
and omissions will be examined in greater
detail infra.
Plaintiffs further allege that the first
New York team learned about the previous
Washington examination while the New
York team was interviewing Madoff in
mid-to-late May 2005. (Ex. A at 195.) In
early June 2005, the Washington team sent
its files to the New York team, and the
New York team performed a ‘‘cursory re-
view’’ of the Washington team’s findings
because the information ‘‘seemed so simi-
lar to what we [the New York team] were
receiving in real time.’’ (Compl. ¶ 105,
quoting Ex. A at 200.) Plaintiffs allege
that the two teams’ failures to fully com-
municate ‘‘resulted in embarrassment and
a waste of Commission resources as two
examination teams from two different of-
fices essentially conducted the same exam-
ination.’’ (Ex. A at 142; see also Compl.
¶ 1 n. 3 (incorporating Report in its entire-
ty into Complaint).)
In September 2005, the first New York
team formally closed its investigation. In
October 2005, after Harry Markopolos’s
third report was referred from the Boston
office, a different New York team began a
new investigation into Madoff’s operations.
In December 2005, this second New York
team filed its ‘‘Matter Under Inquiry’’ re-
port. (Compl. ¶ 124.) The New York of-
fice received another tip about Madoff be-
tween the October 2005 opening of the
investigation and the December 2005 filing
of the Matter Under Inquiry report.
(Compl. ¶ 125.) Plaintiffs allege that, had
the Matter Under Inquiry been filed in
October, this new tip would have been part
of the second New York team’s investiga-
tion. (Compl. ¶ 125.) However, there are
no factual allegations that SEC policy re-
quires that a Matter Under Inquiry form
be filed immediately, other than Plaintiffs’
conclusory allegations that this a ‘‘required
step at the beginning of any Enforcement
investigation.’’ (Compl. ¶ 124.) Contra-
dicting this conclusory assertion, Plaintiffs’
Complaint contains specific factual asser-
tions that, although the Matter Under In-
quiry ‘‘should’’ have been opened sooner,
the SEC’s enforcement manual states that
staff members ‘‘may’’ file a Matter Under
Inquiry if and when they determine that a
complaint is ‘‘serious and substantial.’’
(Compl. ¶ 125, citing Ex. A at 263 (quoting
SEC Enforcement Manual) (emphasis add-
ed).) Plaintiffs further allege that ‘‘it is
unclear whether the tip would have made
any difference in the conduct or the result
of the [second New York team’s] investiga-
tion because TTT of [the investigating at-
torney’s] view that anonymous tips, ‘on
their face’ were not credible.’’ (Ex. A at
265; see also Compl. ¶ 1 n. 3 (incorporat-
ing Report in its entirety into Complaint).)

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1048 707 FEDERAL SUPPLEMENT, 2d SERIES
In June 2006, after completing its exam-
ination, the second New York team filed
its case-closing report despite the fact that
it had failed to resolve all of the red flags
it identified. (Compl. ¶ 147.) However,
there are no allegations that the SEC staff
is required to resolve red flags before de-
ciding to close a case and file a case-
closing report. (See Compl. ¶ 147.)
b. Discussion and Analysis
In short, viewing the plausible infer-
ences of the Complaint’s factual averments
in favor of Plaintiffs, the Complaint alleges
three acts that violated mandatory duties
and/or were not susceptible to policy judg-
ment:
(1) the Washington team failed to file a
case-opening report;
(2) the first New York team failed to
consult the STARs computer database
to find prior case-opening reports re-
garding Madoff; and
(3) the Washington team failed to file a
case-closing memorandum.
Plaintiffs’ other assertions are either un-
supported by any factual allegations what-
soever 19 or are supported by factual alle-
gations that plainly contradict Plaintiffs’
conclusory assertions that there was a
mandatory duty and/or decision not sus-
ceptible to policy analysis.20 Plaintiffs fur-
ther allege that the three specific SEC
omissions had an extremely limited impact.
Plaintiffs assert that the New York team,
prior to closing its investigation, received
and reviewed the Washington files—albeit
in a ‘‘cursory’’ manner because the infor-
mation appeared duplicative of the New
York team’s ongoing investigations.
(Compl. ¶ 105, citing Ex. A at 200.)
Ultimately, then, Plaintiffs are alleging
that two SEC offices violated mandatory
policies and thereby failed to adequately
coordinate their investigations and other-
wise conduct their investigations in a thor-
ough and adequate manner.
As has been shown repeatedly through-
out this Order, the SEC retained discre-
tion to decide how to conduct its investiga-
tions—which includes decisions about how
to coordinate investigations between of-
fices. (See supra Parts. IV.B.1, IV.B.3.)
At the risk of being repetitive, it is useful
to refer back to 15 U.S.C. § 78u(a)(1),
which permits the SEC to decide ‘‘as it
deems necessary’’ how to ‘‘investigate any
facts, conditions, practices, or matters,’’
whether through ‘‘a statement in writing,
under oath or otherwise.’’ In addition, 15
U.S.C. § 78u(d)(1) permits the SEC ‘‘in its
discretion’’ to bring an enforcement action
when it detects a securities violation dur-
ing its investigations. There are, in short,
no mandatory obligations requiring the
SEC to conduct its investigations in a par-
ticular manner or to bring an enforcement
action in particular situations. These deci-
sions are fundamentally discretionary and
require staff to make policy-based judg-
ments. See, e.g., Sloan, 236 F.3d at 762
(‘‘[T]he sifting of evidence, the weighing of
its significance, and the myriad other deci-
sions made during investigations plainly
involve elements of judgment and
choice.’’); Vickers, 228 F.3d at 951 (‘‘[T]he
discretionary function exception protects
19. There are no specific allegations stating
that there was a requirement to follow a case-
planning memorandum. Nor are there spe-
cific allegations stating that there was a re-
quirement to resolve red flags prior to closing
a case and preparing a case-closing memo-
randum.
20. Plaintiffs’ conclusory assertions that there
were mandatory duties are contradicted by
their specific allegations in the Report that
there was no policy requiring staff to prepare
a case-planning memorandum and there was
a discretionary policy (which used the sugges-
tive ‘‘should’’ and the permissive ‘‘may,’’ see
Sabow, 93 F.3d at 1452) regarding staff mem-
bers’ decisions to file a Matter Under Inquiry
report.

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Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
agency decisions concerning the scope and
manner in which it conducts an investiga-
tion.’’).
In light of this broad investigatory dis-
cretion, General Dynamics is therefore di-
rectly on point regarding the small handful
of mandatory procedural obligations im-
posed on SEC staff. In General Dynam-
ics, the Ninth Circuit explained that an
otherwise actionable agency decision is im-
mune from suit if ‘‘a totally separate exer-
cise’’ of ‘‘independent’’ and ‘‘broad based
discretion’’ ‘‘intervenes between an alleged
government wrongdoer and the harm suf-
fered by a plaintiff.’’ 139 F.3d at 1285.
There, prosecutors brought a criminal ac-
tion against General Dynamics based sole-
ly on facts stated in a negligently prepared
auditing statement. The court explained
that the prosecutors’ affirmative decision
to prosecute constituted an independent
exercise of broad-based discretion that
thereby insulated the government from a
lawsuit based on the auditors’ non-discre-
tionary actions. Id. The court noted that
the ‘‘source of the [plaintiff’s] injury’’ was
the independent and ‘‘discretionary’’ deci-
sion to prosecute. Id. Although the prose-
cutors could have sought more information
and could have double-checked the audi-
tors’ reports, they retained discretion to
choose whether or not to do so, and they
affirmatively decided to rely only on the
inaccurate reports. Id.
In contrast, in Glacier Bay, hydrogra-
phers prepared oceanographic charts pur-
suant to mandatory requirements stated in
their handbook. They then presented
these charts to their supervisor, who had
discretion regarding whether or not to ap-
prove those charts. The court held that
the supervisor’s limited exercise of discre-
tion did not immunize the hydrographers’
negligent preparation of the charts in vio-
lation of mandatory guidelines. As the
court later explained in General Dynam-
ics, ‘‘little intervened between the hydrog-
raphers’ wrongdoing and the injury to the
plaintiff.’’ General Dynamics, 139 F.3d at
1285. Instead, there was a ‘‘tight coupling
between hydrographers, reviewers, charts,
and results,’’ such that the plaintiff was
injured by the hydrographers’ violation of
the mandatory guidelines in preparing the
charts, and was not injured by the supervi-
sor’s discretionary approval of the charts.
Id. at 1284.
The allegations in the present case are
far more analogous to the facts in General
Dynamics than in Glacier Bay. Plaintiffs
allege in essence that the first New York
investigative team had a mandatory duty
to be aware of the prior Washington inves-
tigation. Plaintiffs’ allegations are neatly
summarized in a quotation in the Com-
plaint: under SEC policy ‘‘there should
never be two examinations of the same
entity being conducted at the same time
without both teams being aware of each
other’s examination.’’ (Compl. ¶ 102, quot-
ing Ex. A at 132, emphasis added by
Court.) 21
However, even though these two teams’
conduct violated mandatory policies or oth-
erwise involved non-judgment-based deci-
sions, the discretionary function exception
will apply if ‘‘a totally separate exercise’’ of
‘‘independent’’ and ‘‘broad based discre-
tion’’ ‘‘intervenes between an alleged gov-
ernment wrongdoer and the harm suffered
by a plaintiff.’’ General Dynamics, 139
F.3d at 1285. Here, Plaintiffs were
21. Again, the Court notes that the word
‘‘should’’ is suggestive rather than mandatory
and officials’ subjective beliefs are insufficient
evidence of a mandatory policy. However, at
the present stage of proceedings, plausible
inferences in the Complaint must be drawn in
Plaintiffs’ favor. This quotation, combined
with the other factual allegations discussed
supra, provide a plausible inference that these
particular case-management obligations were
mandatory.

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1050 707 FEDERAL SUPPLEMENT, 2d SERIES
harmed by the investigators’ failure to dis-
cover the Madoff fraud and publicize or
prosecute it. Plaintiffs were not harmed
by the teams’ failure to follow case-man-
agement procedures because the first team
of New York investigators undertook an
independent exercise of discretion when
they (1) received and reviewed the Wash-
ington team’s files and determined that the
Washington team’s investigative materials
were duplicative of their own investigation
(Compl. ¶ 105, quoting Ex. A at 200), (2)
conducted their own independent investi-
gation into Madoff’s operations (Compl.
¶¶ 82–109), and (3) determined that there
was no basis for bringing an enforcement
action against Madoff (Compl. ¶ 107).
Each of these three acts by the New
York team was a ‘‘totally separate exercise
of discretion’’ that was unrelated to the
investigators’ non-discretionary violations
of mandatory case-management rules. See
General Dynamics, 139 F.3d at 1285. The
New York investigators retained ‘‘broad
based discretion,’’ id. at 1285, to select the
manner and scope of their investigation of
Madoff and their review of the Washington
team’s files. This ‘‘broad based discretion’’
is derived both from the SEC’s congres-
sionally-authorized discretion to choose the
manner and scope of its investigations, see
15 U.S.C. §§ 78u(a)(1), 78u(d)(1), and from
the inherently discretionary nature of in-
vestigative activities. See, e.g., Sloan, 236
F.3d at 762 (‘‘[T]he sifting of evidence, the
weighing of its significance, and the myri-
ad other decisions made during investiga-
tions plainly involve elements of judgment
and choice.’’); Vickers, 228 F.3d at 951
(‘‘[T]he discretionary function exception
protects agency decisions concerning the
scope and manner in which it conducts an
investigation.’’).
In addition, the New York team, after
conducting an independent and discretion-
ary review of both Madoff’s operations and
the Washington team’s files, made an inde-
pendent decision to close its investigation
in September 2005 without bringing an
enforcement action against Madoff. The
decision of whether or not to bring an
enforcement action is plainly discretionary.
See 15 U.S.C. § 78u(d)(1) (permitting SEC
‘‘in its discretion’’ to bring enforcement
actions); 17 C.F.R. § 202.5 (stating that
SEC ‘‘may in its discretion’’ select from
various enforcement tools if it believes that
enforcement action is necessary). Al-
though FTCA claims most often involved
negligent agency actions rather than fail-
ures to act, the New York team’s decision
not to act was fully within its discretion in
selecting the manner and scope of its in-
vestigations and enforcement actions. See,
e.g., Block v. SEC, 50 F.3d at 1084 (in
Administrative Procedures Act action,
SEC cannot be compelled to undertake
certain enforcement actions); Board of
Trade v. SEC, 883 F.2d at 531 (same);
Leytman v. New York Stock Exchange,
1995 WL 761843, at *3 (dismissing FTCA
claims alleging that SEC failed to investi-
gate alleged wrongdoing).
In short, General Dynamics applies to
the allegedly negligent acts by the Wash-
ington team and the first New York team.
The New York team’s intervening discre-
tionary actions are closely analogous to the
General Dynamics prosecutors’ actions in
at least two ways:
(1) In General Dynamics, the prosecu-
tors reviewed and relied on information
contained in a negligently-conducted inves-
tigation when choosing to pursue a prose-
cution. Here, the first New York team
reviewed the Washington team’s allegedly
negligently-prepared files and the New
York team relied (at least part) on those
files in choosing to close the case without
pursuing an enforcement action. In both
cases, the second actor retained discretion
to decide how thoroughly to rely on (or
discredit) the underlying information re-

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1051 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
ceived from a previous investigation. In
both cases, the second actor exercised that
discretion: in General Dynamics, the
prosecutors elected not to conduct a fur-
ther investigation, and here, the New York
team elected to conduct a ‘‘cursory’’ review
of the Washington team’s files.
(2) In General Dynamics, the prosecu-
tors retained discretion to conduct addi-
tional independent investigations before
deciding whether or not to file a criminal
action; they elected to file the action with-
out seeking additional information beyond
that contained in the auditing reports.
Here, the first New York team retained
discretion to conduct further investigations
into Madoff’s affairs before deciding
whether or not to bring enforcement ac-
tions against Madoff. Unlike the prosecu-
tors in General Dynamics, the New York
team elected to conduct additional inde-
pendent investigations beyond those con-
tained in the Washington team’s files, and
the New York team further elected to
close its case without bringing an enforce-
ment action.22 The New York team in fact
exercised greater discretion than the pros-
ecutors in General Dynamics—the prose-
cutors in General Dynamics were present-
ed with clear (albeit incorrect) evidence
showing fraud; it does not exactly require
‘‘a robust exercise of discretion’’ to decide
to prosecute that fraud. 139 F.3d at 1285.
Here, however, neither the Washington
team nor the New York team uncovered
any actionable wrongdoing. Accordingly,
the New York team exercised relatively
‘‘robust’’ discretion by deciding to investi-
gate the allegations further and ultimately
concluding on the basis of that investiga-
tion not to bring an enforcement action.
Thus, the New York team’s actions—its
affirmative choice to review the Washing-
ton team’s files; its affirmative choice to
conduct additional investigations into Ma-
doff’s operations; and its affirmative
choice not to bring an enforcement ac-
tion—constituted intervening exercises of
independent and broad-based discretion.
Both the facts and holding of General Dy-
namics are directly on-point. As such, the
discretionary function exception bars
Plaintiffs’ claims regarding the Washing-
ton and New York investigators’ alleged
failures to follow mandatory case-manage-
ment procedures.
6. Conclusion Regarding Plaintiffs’
Purportedly Mandatory Duties
Plaintiffs have failed to identify any of
the SEC’s non-discretionary acts that are
actionable under Ninth Circuit precedent.
As such, they have not rebutted the
‘‘strong presumption’’ established in the
statutes, regulations, and caselaw in De-
fendant’s favor. Gaubert, 499 U.S. at 324,
111 S.Ct. 1267. The discretionary function
exception bars Plaintiffs’ claims.
V. PLAINTIFFS’ REQUEST TO CON-
DUCT DISCOVERY
Plaintiffs insist that as-yet-undiscovered
internal policies and guidelines will reveal
that the SEC’s actions violated clear man-
datory rules. (Surreply at 9, 11.) Howev-
er, Plaintiffs have not plausibly alleged any
facts suggesting that such mandatory rules
exist. In addition, Plaintiffs have failed to
22. Even though Plaintiffs allege that the New
York team’s review of the Washington team’s
files was ‘‘cursory,’’ the General Dynamics
court clearly explained that it is inappropriate
to consider the thoroughness or accuracy of
an intervening exercise of ‘‘broad based dis-
cretion.’’ See 139 F.3d at 1285. The General
Dynamics prosecutors ‘‘could have had even
more information if they had chosen to pur-
sue it.’’ Id. (emphasis added). Likewise, the
first New York team could have conducted
additional investigations into Madoff’s opera-
tions or reviewed the Washington team’s files
more thoroughly. However, the first New
York team retained ‘‘broad based discretion’’
to choose the methods and scope of its inves-
tigation.

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1052 707 FEDERAL SUPPLEMENT, 2d SERIES
identify the specific types of rules that are
likely to exist. Finally, Plaintiffs have
failed to consult the voluminous public rec-
ord that might bolster their conclusory
assertions or potentially contradict them.
In short, Plaintiffs have failed to allege
sufficient ‘‘facts to raise a reasonable ex-
pectation that discovery will reveal evi-
dence’’ supporting their conclusory asser-
tions. Twombly, 550 U.S. at 556, 127 S.Ct.
1955. This Court is barred from ‘‘un-
lock[ing] the doors of discovery for a plain-
tiff armed with nothing more than conclu-
sions.’’ Ashcroft v. Iqbal, 129 S.Ct. at
1950. Accordingly, discovery is inappro-
priate at this juncture.
A. LEGAL STANDARD
[9] ‘‘[W]here pertinent facts bearing on
the question of jurisdiction are in dispute,
discovery should be allowed.’’ Am. West
Airlines, Inc. v. GPA Group, Ltd., 877
F.2d 793, 801 (9th Cir.1989). However, a
‘‘court’s refusal to allow further discovery
before dismissing on jurisdictional grounds
is not an abuse of discretion ‘when it is
clear that further discovery would not
demonstrate facts sufficient to constitute a
basis for jurisdiction.’ ’’ Id. at 801 (quot-
ing Wells Fargo & Co. v. Wells Fargo
Express Co., 556 F.2d 406, 430–31, n. 24
(9th Cir.1977)).
In the FTCA immunity context, ‘‘[i]t is
well-established that ‘the burden is on the
party seeking to conduct additional discov-
ery to put forth sufficient facts to show
that the evidence sought exists.’ ’’ Gager
v. United States, 149 F.3d 918, 922 (9th
Cir.1998) (quoting Conkle v. Jeong, 73 F.3d
909, 914 (9th Cir.1995)) (internal altera-
tions omitted). In this regard, it is impor-
tant to remember that the Rule 8 pleading
requirements prevent parties from filing
complaints in order to conduct aimless
fishing expeditions in the hope that some
helpful evidence might possibly be uncov-
ered. See Ashcroft v. Iqbal, 129 S.Ct. at
1950 (‘‘Rule 8 TTT does not unlock the
doors of discovery for a plaintiff armed
with nothing more than conclusions.’’);
Twombly, 550 U.S. at 556, 127 S.Ct. 1955
(‘‘[A]sking for plausible grounds to infer’’
that a wrongful act occurred requires
plaintiff to plead ‘‘enough facts to raise a
reasonable expectation that discovery
will reveal evidence of’’ that wrongful act)
(emphasis added).
The Ninth Circuit applied Twombly to
the discretionary function exception in Doe
v. Holy See, 557 F.3d at 1084–86. The
court affirmed a dismissal under the For-
eign Sovereign Immunities Act’s discre-
tionary function exception where the de-
fendant made only a ‘‘facial attack on the
allegations of subject-matter jurisdiction in
the complaint.’’ Id. at 1086. The court
dismissed the complaint because it con-
tained only conclusory assertions that the
defendant had adopted a mandatory policy
relevant to the cause of action, and the
plaintiff wholly failed to ‘‘state the terms of
this alleged policy, or describe any docu-
ments, promulgations, or orders embody-
ing it.’’ Id. Notably, the court did not
require that the plaintiff have an opportu-
nity to conduct discovery into the existence
of this alleged policy. See id. at 1084–86.
Instead, the court merely analyzed the
adequacy of the plaintiff’s pleadings, and,
finding them to be insufficient under
Twombly, affirmed dismissal under the
discretionary function exception. Id. at
1086.
Even prior to the Supreme Court’s re-
articulation of the proper pleading require-
ments in Twombly and Iqbal, it was not
unusual for courts to dismiss FTCA claims
under the discretionary function exception
without giving litigants an opportunity to
conduct discovery. See, e.g., Abreu v.
United States, 468 F.3d 20, 33 (1st Cir.
2006); Dalli v. Frech, 70 Fed.Appx. 46 (2d
Cir.2003); see also Mesa v. United States,
123 F.3d 1435, 1439 (11th Cir.1997) (af-

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1053 DICHTER–MAD FAMILY PARTNERS, LLP v. U.S.
Cite as 707 F.Supp.2d 1016 (C.D.Cal. 2010)
firming dismissal under discretion function
exception where ‘‘[plaintiffs] have pointed
to no act of these DEA agents that could
fall outside of the discretionary function
exception, nor have the [plaintiffs] pointed
to any requested discovery that could rea-
sonably be expected to reveal any such
act.’’); accord Razore v. Tulalip Tribes of
Wash., 66 F.3d 236, 240 (9th Cir.1995)
(affirming dismissal of CERCLA action on
jurisdictional grounds without permitting
parties to conduct discovery); but see Ig-
natiev v. United States, 238 F.3d 464, 467
(D.C.Cir.2001) (holding that D.C. Circuit
‘‘require[s] that plaintiffs be given an op-
portunity for discovery of facts TTT [re-
garding the] existence [or not] of internal
governmental policies guiding that ac-
tion.’’).23
B. DISCUSSION AND ANALYSIS
[10] Additional discovery is not appro-
priate at present. Plaintiffs have not
pleaded ‘‘enough facts to raise a reason-
able expectation that discovery will reveal
evidence of’’ the sought-after SEC policies
and guidelines. Twombly, 550 U.S. at 556,
127 S.Ct. 1955. In their request for dis-
covery contained in the sur-reply, Plain-
tiffs have failed to meet their burden of
‘‘put[ting] forth sufficient facts to show
that the evidence sought exists.’’ Gager,
149 F.3d at 922.
A salient analogy can be found in Free-
man v. United States, 556 F.3d 326 (5th
Cir.), cert. denied, ––– U.S. ––––, 130 S.Ct.
154, 175 L.Ed.2d 39 (2009). In that case,
the court held that the ‘‘plaintiffs have
failed to articulate a discrete discovery
request that might cure the jurisdictional
deficiency and have failed to otherwise
specify where they might discover the nec-
essary factual predicate for subject matter
jurisdiction.’’ Id. at 342. The Freeman
case is particularly relevant because it in-
volved a ‘‘well-documented’’ government
failure akin to the one at issue in the
present case: the government’s response
to Hurricane Katrina. Id. at 343. The
court stated that it found ‘‘no fault in the
district court’s conclusion that a mandato-
ry directive, if one existed, could be found
in the public realm’’ because ‘‘in this case
plaintiffs’ allegations are based on statutes,
regulations, and other authorities that are
publicly available.’’ Id. at 342.
Freeman is particularly apt because the
plaintiffs in that case relied heavily ‘‘on
numerous congressional investigations re-
garding the government’s response to
Hurricane Katrina.’’ Id. at 342 n. 16. In
the case before this Court, Plaintiffs rely
almost exclusively on the SEC Office of
23. The D.C. Circuit’s Ignatiev opinion re-
quires that district courts in that Circuit allow
FTCA plaintiffs an opportunity to pursue lim-
ited discovery to determine whether or not
internal agency guidelines mandate staff
members to take a particular course of action.
It is unclear whether Ignatiev’s bright-line
rule survives post-Twombly and -Iqbal, both
of which state that something more than a
conclusory allegation is required to obtain
discovery. As the Supreme Court explained
in Iqbal:
Respondent TTT implies that our construc-
tion of Rule 8 should be tempered where, as
here, the Court of Appeals has ‘‘instructed
the district court to cabin discovery in such
a way as to preserve’’ petitioners’ defense of
qualified immunity ‘‘as much as possible in
anticipation of a summary judgment mo-
tion.’’ Iqbal Brief 27. We have held, how-
ever, that the question presented by a mo-
tion to dismiss a complaint for insufficient
pleadings does not turn on the controls
placed upon the discovery process. Twom-
bly, [550 U.S.] at 559, 127 S.Ct. 1955 (‘‘It is
no answer to say that a claim just shy of a
plausible entitlement to relief can, if
groundless, be weeded out early in the dis-
covery process through careful case man-
agement given the common lament that the
success of judicial supervision in checking
discovery abuse has been on the modest
side.’’).
Iqbal, 129 S.Ct. at 1953.

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1054 707 FEDERAL SUPPLEMENT, 2d SERIES
Inspector General’s Report. Plaintiffs
have done nothing more than read a small
portion of the voluminous public record
regarding the relevant factual issues.
Notably, Plaintiffs have not shown that
the relevant information is unavailable to
them in the absence of discovery. To the
contrary, the SEC Inspector General has
issued a follow-up report that specifically
examines the Office of Compliance Inspec-
tions and Examinations’s ‘‘modules, poli-
cies, procedures and guidance associated
with the conduct of its examinations’’ into
Madoff’s conduct. The Court further
notes that countless other relevant docu-
ments are readily available through the
SEC’s website.
Accordingly, Plaintiffs’ request for dis-
covery is denied.
VI. LEAVE TO AMEND THE COM-
PLAINT
When a court grants a motion to dis-
miss, the court may grant the plaintiff
leave to amend a deficient claim ‘‘when
justice so requires.’’ Fed.R.Civ.P. 15(a)(2).
The plaintiff need not specifically request
leave to amend. Doe v. United States, 58
F.3d 494, 497 (9th Cir.1995); but see
Reyn’s Pasta Bella, LLC v. Visa USA,
Inc., 442 F.3d 741, 749 (9th Cir.2006) (‘‘Al-
though Plaintiffs’ complaint is susceptible
of amendment, we generally will not re-
mand with instructions to grant leave to
amend unless the plaintiff sought leave to
amend below.’’) (citing Alaska v. United
States, 201 F.3d 1154, 1163–64 (9th Cir.
2000)). ‘‘Five factors are frequently used
to assess the propriety of a motion for
leave to amend: (1) bad faith, (2) undue
delay, (3) prejudice to the opposing party,
(4) futility of amendment; and (5) whether
plaintiff has previously amended his com-
plaint.’’ Allen v. City of Beverly Hills, 911
F.2d 367, 373 (9th Cir.1990) (citing Ascon
Properties, Inc. v. Mobil Oil Co., 866 F.2d
1149, 1160 (9th Cir.1989)).
It is disfavored to prevent a plaintiff
from amending the complaint at least once,
and Defendant has not introduced any evi-
dence showing that amendment would be
entirely futile. Accordingly, Plaintiffs are
granted 30 days to amend their Complaint
and incorporate plausible factual allega-
tions showing that the SEC failed to con-
form to its mandatory duties.
[11] Plaintiffs are cautioned that an
amended complaint supercedes a previous
complaint. See, e.g., Hal Roach Studios,
Inc. v. Richard Feiner & Co., 896 F.2d
1542, 1546 (9th Cir.1990); see also Local
Rule 15–2. When an amended complaint
is filed, the previous complaint is rendered
null and void, and only the amended com-
plaint remains legally operable. Under
this rule, ‘‘a plaintiff waives all causes of
action alleged in the original complaint
which are not alleged in the amended com-
plaint.’’ London v. Coopers & Lybrand,
644 F.2d 811, 814 (9th Cir.1981). Accord-
ingly, if Plaintiffs wish to preserve their
original arguments for appeal, Plaintiffs
are advised to restate those allegations in
their amended complaint.24 However, in
order to expedite future proceedings, the
Court orders Plaintiffs to clearly identify
any modifications, additions, or deletions in
their amended complaint.
While preparing the amended complaint,
Plaintiffs are advised that Fed.R.Civ.P.
11(b) requires that the factual allegations
be made ‘‘to the best of the person’s
knowledge, information, and belief, formed
24. Given the voluminous nature of the origi-
nal complaint, the Court grants Plaintiffs
permission to incorporate their original alle-
gations by reference into the amended com-
plaint. The Court anticipates, however, that
the ‘‘law of the case’’ doctrine may preclude
reconsideration of the specific allegations ad-
dressed in the present Order. See, e.g., Unit-
ed States v. Smith, 389 F.3d 944, 948–50 (9th
Cir.2004).

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1055 ROUSER v. WHITE
Cite as 707 F.Supp.2d 1055 (E.D.Cal. 2010)
after an inquiry reasonable under the cir-
cumstances.’’ Obviously this rule does not
require Plaintiffs’ amended complaint to
contain factual support of the type re-
quired in a Rule 56 summary judgment
motion. But in the present context, in
order for Plaintiffs’ pre-filing ‘‘inquiry’’ to
be ‘‘reasonable under the circumstances,’’
they are expected to make a good faith
examination of the publicly available docu-
ments and allege only those facts that are
reasonably likely to find evidentiary sup-
port during discovery. Plaintiffs shall re-
frain from submitting additional concluso-
ry allegations regarding unnamed ‘‘policies
and practices.’’ Plaintiffs shall also refrain
from submitting new allegations that are
contradicted by facts stated in any of the
SEC’s Office of Inspector General reports
unless Plaintiffs can also plausibly allege
that such reports are inaccurate or incom-
plete. Plaintiffs shall identify, to the best
of their ability, the specific type of conduct
governed by the alleged policies and the
specific time period during which the poli-
cies were effective.
Plaintiffs are advised that if they are
unable to make a sufficient good faith in-
quiry within 30 days, their action will be
dismissed without prejudice for lack of
subject matter jurisdiction. See Frigard
v. United States, 862 F.2d 201, 204 (9th
Cir.1988) (per curiam); Fed.R.Civ.P. 41(b).
Because dismissal for lack of subject mat-
ter jurisdiction is ordinarily without preju-
dice, Plaintiffs may not necessarily be
barred from reinstating the action in the
future. See Wright & Miller, Federal
Practice & Procedure § 1350 & nn. 61–62
(collecting cases).
VII. CONCLUSION
Accordingly, Defendants’ Motions to
Dismiss for lack of subject matter jurisdic-
tion are GRANTED. Plaintiffs may file
an amended complaint containing new alle-
gations that are reasonably aimed at satis-
fying Plaintiffs’ burden as described in this
Order. If Plaintiffs choose to file an
amended complaint, the amended com-
plaint must be filed within 30 days of the
date that this Order is entered on the
docket. Should Plaintiffs fail to file an
amended complaint, the action will be dis-
missed without prejudice for lack of sub-
ject matter jurisdiction.
IT IS SO ORDERED.
,
William ROUSER, Plaintiff,
v.
Theo WHITE, et al., Defendants.
No. CIV S–93–0767 LKK GGH P.
United States District Court,
E.D. California.
April 15, 2010.
Background: State prisoner, who was
practicing Wiccan, brought action under
§ 1983 and Religious Land Use and Insti-
tutionalized Persons Act (RLUIPA)
against prison officials, alleging, among
other things, that officials retaliated
against his filing of grievances and litiga-
tion arising out of officials’ alleged failure
to accommodate his practice of religion.
Prisoner moved for preliminary injunction,
seeking order enjoining officials from tak-
ing his religious articles and requiring
them to satisfy certain requirements with
respect to his religious services.
Holdings: The District Court, Lawrence
K. Karlton, Senior District Judge, held
that:
(1) it could entertain prisoner’s motion
even though interlocutory appeal was
pending;

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