Rodney S. Ratheal v. United States of America

UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT
_________________________________
RODNEY S. RATHEAL,
Plaintiff - Appellant,
v.
UNITED STATES OF AMERICA,
Defendant - Appellee.
No. 20-4099
(D.C. No. 2:19-CV-00969-DB)
(D. Utah)
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before MATHESON, BRISCOE, and McHUGH, Circuit Judges.
_________________________________
This appeal stems from a settled civil injunctive action the Securities and
Exchange Commission (“SEC”) filed against Rodney S. Ratheal and his company,
Premco Western, Inc. (the “Premco case”), and the SEC’s online postings about the
settlement. In his lawsuit against the United States, Ratheal asserted claims under the
Federal Tort Claims Act (“FTCA”) arising from the investigation and postings. The
district court held that the claims were barred under the discretionary function
* After examining the briefs and appellate record, this panel has determined
unanimously that oral argument would not materially assist in the determination of
this appeal. See Fed. R. App. P. 34(a)(2); 10th Cir. R. 34.1(G). The case is therefore
ordered submitted without oral argument. This order and judgment is not binding
precedent, except under the doctrines of law of the case, res judicata, and collateral
estoppel. It may be cited, however, for its persuasive value consistent with
Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
FILED
United States Court of Appeals
Tenth Circuit
August 16, 2021
Christopher M. Wolpert
Clerk of Court
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exception to the FTCA’s waiver of sovereign immunity and dismissed the complaint
pursuant to Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction. Ratheal
appeals that order. 1 Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.
I. BACKGROUND
Following its investigation, the SEC filed the Premco case in December 2012.
At about the same time, consistent with its standard practice, the agency published a
litigation release on its website, summarizing the allegations in the SEC’s complaint
and the terms of the settlement. In April 2017, Ratheal discovered “2016
whistleblower postings online” where the SEC listed him as a basis for rewarding
whistleblowers who assist in fraud investigations. R. at 7. The posting included a
copy of the litigation release and a link to the complaint in the Premco case.
Ratheal filed this suit in 2019, asserting claims for negligence,
misrepresentation, and abuse of process based on the SEC investigation and
postings. 2 The government moved to dismiss the complaint, arguing that the claims
were barred by the discretionary function exception. 3 A magistrate judge issued a
1 Ratheal’s pro se status entitles him to a liberal reading of his filings.
Ledbetter v. City of Topeka, 318 F.3d 1183, 1187 (10th Cir. 2003).
2 This is Ratheal’s second lawsuit involving essentially the same claims.
He filed the first suit in 2017 against the SEC, an SEC attorney, and two
non-governmental defendants. The SEC defendants moved to dismiss on several
grounds, including that Ratheal named them, instead of the United States, as
defendants. He agreed to dismissal of his claims against the SEC defendants without
prejudice so he could file his claims against the United States.
3 The government also sought dismissal on other grounds, but the district court
did not address those issues because it dismissed the complaint on immunity grounds.
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report and recommendation concluding that the discretionary function exception
barred all of Ratheal’s claims, and recommending that the court dismiss the
complaint without prejudice for lack of jurisdiction.
Ratheal filed an objection to the report and recommendation. As pertinent
here, he argued that the magistrate judge’s discretionary-function determination was
based on the “false premise that the challenged conduct . . . [was] the SEC’s
discretion to investigate.” R. at 415. He explained that rather than challenging the
decision to undertake the investigation, his claims challenged what he characterized
as the SEC employees’ decisions to (1) “breach their respective duties to properly
and fairly implement SEC investigative, settlement, and enforcement processes and
procedures,” R. at 415; and (2) make postings “falsely implying guilt and fraud not
justified by the No Admit No Deny settlement,” id. at 416. He argued that the
implementation and posting decisions did not fall within the discretionary function
exception. He also argued that his abuse of process claim was not subject to
dismissal under the discretionary function exception because 28 U.S.C. § 2680(h)’s
law-enforcement exception to the intentional-tort exception to the FTCA’s waiver of
sovereign immunity applied to that claim.
The district court overruled his objections, adopted the magistrate judge’s
report and recommendation, and dismissed the complaint without prejudice.
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II. DISCUSSION
A. Legal Standards
We review the district court’s dismissal for lack of subject matter jurisdiction
pursuant to Rule 12(b)(1) de novo. Holt v. United States, 46 F.3d 1000, 1003
(10th Cir. 1995), abrogated on other grounds by Cent. Green Co. v. United States,
531 U.S. 425, 437 (2001). We also review de novo its determination that the
discretionary function exception applies. Garcia v. U.S. Air Force, 533 F.3d 1170,
1175 (10th Cir. 2008).
The FTCA waives sovereign immunity for actions against the United States
resulting from injuries caused by the negligent acts of its employees while acting in
the scope of their employment. 28 U.S.C. § 1346(b)(1). This waiver is limited by a
number of statutory exceptions, including the discretionary function exception at
issue here. See id. § 2680(a). The discretionary function exception is jurisdictional,
and it was Ratheal’s burden to establish subject matter jurisdiction. Garcia, 533 F.3d
at 1175. To avoid dismissal of his claims under the discretionary function exception,
he needed to “allege facts that place [his] claim[s] facially outside the exception.”
Franklin Sav. Corp. v. United States, 180 F.3d 1124, 1130 (10th Cir. 1999).
The discretionary function exception preserves sovereign immunity for claims
based on a federal agency’s or employee’s “exercise or perform[ance] . . . [of] a
discretionary function or duty,” regardless of whether “the discretion involved be
abused.” 28 U.S.C. § 2680(a). Whether the exception applies depends on the nature
of the agency’s conduct as evaluated under the two-part test established in Berkovitz
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ex. rel Berkovitz v. United States, 486 U.S. 531, 536 (1988). When both elements are
met, the conduct is protected as a discretionary function and sovereign immunity bars
any claim involving that conduct. Garling v. United States Env’t Prot. Agency,
849 F.3d 1289, 1295 (10th Cir. 2017).
At the first step of the Berkovitz test, we consider whether the government
function in question was “discretionary,” meaning whether it was “a matter of choice
for the acting employee.” Berkovitz, 486 U.S. at 536. “Conduct is not discretionary
if a federal statute, regulation, or policy specifically prescribes a course of action for
an employee to follow” because in those circumstances, “the employee has no
rightful option but to adhere to the directive.” Garcia, 533 F.3d at 1175 (internal
quotation marks omitted). Where no “statutes, regulations, or policies prescribing a
specific course of action for [agency] employees to follow in investigating potential
. . . violations,” the first prong of the discretionary function test is satisfied. Garling,
849 F.3d at 1296.
If the conduct was discretionary, we move to the second step, where we
consider whether the conduct required the “exercise of judgment based on public
policy considerations.” Id. “When established 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 policy
when exercising that discretion.” United States v. Gaubert, 499 U.S. 315, 324
(1991). Thus, to survive a motion to dismiss, the plaintiff must allege facts that
“would support a finding that the challenged actions are not the kind of conduct that
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can be said to be grounded in the policy of the regulatory regime.” Id. at 324-25.
The focus of this inquiry is “on the nature of the actions taken and on whether they
are susceptible to policy analysis.” Id. at 325; see also Lopez v. United States,
376 F.3d 1055, 1057 (10th Cir. 2004) (explaining that we “need not find that a
government employee made a conscious decision regarding policy considerations in
order to satisfy the second prong of the Berkovitz test”).
B. The District Court’s Ruling
The district court concluded that all of Ratheal’s claims, including the abuse of
process claim, which was based largely on the whistleblower posting, stemmed from
the SEC’s 2012 investigation and settled civil action. The court explained that
because such postings are intended “to incentivize the public to come forward and
help aid in SEC investigations,” posting them “should be considered a part of the
investigation process.” R. at 427 n.2. In so concluding, the court rejected Ratheal’s
argument that the abuse of process claim survived the motion to dismiss because it
fell within § 2680(h)’s law enforcement proviso.
The court then applied the Berkovitz test and held that both prongs were met.
It concluded the first prong was satisfied because Ratheal had “not identified any
prescribed duty applicable to investigations . . . [or] supported any of his allegations
with any specific statute, regulation, or policy that governs SEC investigation
procedures.” R. at 427. Accordingly, the court held that the investigation, including
the subsequent postings, was “discretionary, meaning it was a matter of judgment or
choice.” Id. (internal quotation marks omitted). Turning to the second prong, the
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district court observed that under 15 U.S.C. § 78u(a)(1), the SEC has discretion to
“make such investigations as it deems necessary” to determine whether the target of
the investigation has committed any violations, and “to publish information
concerning any such violations” as it “deem[s] necessary or proper to aid in the
enforcement of” the laws and regulations it is charged with enforcing. The court held
that the SEC employees’ investigative and posting decisions under § 78u(a)(1)
required “the exercise of judgment based on considerations of public policy,”
R. at 427 (internal quotation marks omitted), and were thus covered by the
discretionary function exception under Gaubert. In so holding, the court rejected
Ratheal’s argument that the exception did not bar his claims because the challenged
conduct occurred at the implementation level, not the design/policy-making level.
C. Analysis
1. The District Court Was not Required to Treat the Motion to
Dismiss as a Motion for Summary Judgment
Ratheal first contends the district court erred by not treating the motion to
dismiss as a motion for summary judgment. We disagree.
A Rule 12(b)(1) challenge to subject matter jurisdiction can be either facial or
factual. See Holt, 46 F.3d at 1002. A facial attack “questions the sufficiency of the
complaint,” and when “reviewing a facial attack on the complaint, a district court
must accept the allegations in the complaint as true.” Id. A factual attack goes
beyond allegations in the complaint and challenges the facts on which subject matter
jurisdiction depends. Id. at 1003. When reviewing a factual attack, a court “may not
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presume the truthfulness of the complaint’s factual allegations,” and may consider
affidavits and other documents to resolve disputed jurisdictional facts under Rule
12(b)(1) without converting the motion to a summary judgment motion. Id.
However, when the question of the applicability of the discretionary function
exception is intertwined with the merits of the case, the government’s motion to
dismiss should be construed as a motion for summary judgment. Id. Although we
have said that “[t]he jurisdictional question is intertwined with the merits of the case
if subject matter jurisdiction is dependent on the same statute which provides the
substantive claim in the case,” id., we later clarified that “the focus of the inquiry is
not merely on whether the merits and the jurisdictional issue are under the same
statute,” Sizova v. Nat’l Inst. of Standards & Tech., 282 F.3d 1320, 1324 (10th Cir.
2002). Instead, whether a motion to dismiss must be converted to a motion for
summary judgment depends on whether “resolution of the jurisdictional question
requires resolution of an aspect of the substantive claim.” Id. (internal quotation
marks omitted).
Here, the district court answered the jurisdictional question as a matter of law,
without resolving any factual disputes or substantive aspects of Ratheal’s claims.
Accordingly, it properly applied the Rule 12(b)(1) standard, not the standards
applicable to a summary judgment motion. See Lopez, 376 F.3d at 1057; Sizova,
282 F.3d at 1324.
Moreover, although Ratheal filed a motion for summary judgment after the
motion to dismiss was fully briefed, he did not ask the district court—either in that
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motion or in his objection to the magistrate’s report and recommendation—to treat
the motion to dismiss as a motion for summary judgment. He thus waived any
challenge to the district court’s failure to do so. See Lopez, 376 F.3d at 1057. And in
any event, he does not explain how applying the summary judgment standard—
viewing all well-pled facts in the light most favorable to him and drawing all
reasonable inferences in his favor 4—would have made a difference, given that the
court did not resolve any factual disputes.
2. The Abuse of Process Claim Does not Fall under the Law
Enforcement Proviso
Ratheal next contends the district court erred by concluding the law
enforcement proviso does not apply to his abuse of process claim. We disagree.
The first clause of § 2680(h) excludes certain state law intentional tort claims
from the FTCA’s waiver of sovereign immunity. See 28 U.S.C. § 2680(h). That
provision is known as the intentional tort exception. See Garling, 849 F.3d at 1295.
The second clause of § 2680(h) carves out an exception to the intentional tort
exception and waives sovereign immunity for six torts, including abuse of process,
when the claim stems from the “acts or omissions” of federal “law enforcement
officers.” 28 U.S.C. § 2680(h). To determine whether a claim falls within the law
enforcement proviso, courts look to the substance of the claim, not how the plaintiff
labeled it in the complaint. Garling, 849 F.3d at 1298. “[A] plaintiff may not recast
4 See Dewitt v. Sw. Bell Tel. Co., 845 F.3d 1299, 1306 (10th Cir. 2017).
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a negligence tort as an intentional tort to take advantage of the law enforcement
exception to § 2680(h).” Id. (internal quotation marks omitted).
Under Utah law, “[t]he misuse of legal process becomes actionable when it is
used primarily to accomplish a purpose for which it is not designed.” Hatch v. Davis,
147 P.3d 383, 389 (Utah 2006) (internal quotation marks omitted). 5 Thus, to
constitute an abuse of process, the challenged conduct must be “a perversion of the
process to accomplish some improper purpose.” Id. (internal quotation marks
omitted).
Ratheal’s abuse of process claim alleged that SEC agents “falsely and wrongly
listed and posted online, [his] name under Fraud as the basis for awarding
whistleblower funds.” R. at 10. In his opposition to the motion to dismiss, he
explained that the SEC “abused [the] No Admit No Deny process by implying a
‘truth’ that was not true by listing [him] under Fraud when there had been no
conviction or admission.” Id. at 166; see also id. at 169 (stating that SEC agents
abused process by “posting fraudulent online Whistleblower notices and documents
falsely listing [him] under fraud”).
5 The issues of subject matter jurisdiction and the meaning of terms used in the
FTCA are matters of federal law, but liability issues are determined by state law.
Molzof v. United States, 502 U.S. 301, 305 (1992); Franklin v. United States,
992 F.2d 1492, 1495 (10th Cir. 1993) (explaining that under § 1346(b)(1), “we
resolve questions of liability under the FTCA in accordance with the law of the state
where the alleged tortious activity took place”).
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Based on these allegations, the district court concluded the “complaint
attempt[ed] to bring intentional tort claims without alleging intentional tort facts,”
and did not allege “facts showing that the SEC had the required ulterior purpose for
an abuse of process claim in Utah.” R. at 429 (internal quotation marks omitted).
We agree. And despite Ratheal’s characterization of these allegations as asserting an
abuse of process claim, we also agree with the district court’s determination that, at
best, the alleged facts amount to a defamation claim grounded in negligence, which is
not one of the torts listed in the law enforcement proviso. Ratheal cannot avoid
application of the discretionary function exception by casting a defamation claim as
an abuse of process claim. See Garling, 849 F.3d at 1298.
3. The Design/Implementation Distinction is Inapplicable
We also reject Ratheal’s contention that the discretionary function exception
does not apply to his claims because the challenged conduct—the manner of the
investigation and the subsequent postings—involved the SEC’s implementation of its
investigative policies, not discretionary policy decisions.
His argument is based on Whisnant v. United States, 400 F.3d 1177 (9th Cir.
2005), in which the Ninth Circuit construed its past precedent as holding that “the
design of a course of governmental action is shielded by the discretionary function
exception, whereas the implementation of that course of action is not.” 400 F.3d
at 1181. Whisnant was an employee of a government contractor who brought FTCA
claims against the United States based on his exposure to toxic mold at a naval base
commissary. At step one of the discretionary function analysis, the court recognized
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that “[n]o statute, policy, or regulation prescribed the specific manner in which the
commissary was to be inspected or a specific course of conduct for addressing mold.”
Id. at 1181. But applying the design/implementation distinction at step two, the court
held that Whisnant’s claims were not barred because he “alleged negligence in the
implementation, rather than the design, of government safety regulations, and the
governmental decisions [he] claim[ed] were negligent concerned technical and
professional judgments about safety rather than broad questions of social, economic,
or political policy.” Id. at 1185; see also id. at 1183 (“Cleaning up mold involves
professional and scientific judgment,” not a policy decision.).
Relying on this design/implementation distinction, Ratheal maintains that his
claims are not barred because they challenge decisions SEC employees made during
the implementation stage of the investigation, not policy-based design decisions. But
this circuit has not adopted the Ninth Circuit’s design/implementation distinction,
and we decline to apply it to Ratheal’s claims because, even if it is a valid distinction
in the right case, it is inapposite here for at least two reasons.
First, Whisnant makes clear that the distinction applies to governmental
decisions involving safety concerns. As the court explained, “[t]he decision to adopt
safety precautions may be based in policy considerations, but the implementation of
those precautions is not [because] safety measures, once undertaken, cannot be
shortchanged in the name of policy.” Id. at 1182 (alteration and internal quotation
marks omitted). Ratheal’s claims plainly do not involve safety concerns or any other
scientific or technical matter to which the design/implementation distinction might
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apply. And to the extent the distinction applies in other contexts where the
government designs procedures its employees implement, Ratheal does not identify
investigation procedures the SEC adopted at a policy level that its employees violated
at the implementation stage. His unspecific reference to “SEC investigative,
settlement, and enforcement processes and procedures,” R. at 415, is insufficient to
satisfy his burden to “allege facts that place [his] claim[s] facially outside the
[discretionary function] exception,” Franklin, 180 F.3d at 1130.
Moreover, while Whisnant drew the distinction between policy design and
implementation, it also made clear that the “implementation of a government policy
is shielded where the implementation itself implicates policy concerns.” 400 F.3d
at 1182 n.3 (emphasis omitted). What distinguished the mold situation in Whisnant is
that there was no legitimate reason for the commissary not to eliminate the toxic
mold—there were no policy judgments to be made at the implementation stage. That
is not the case here. SEC employees responsible for following the agency’s policies
have significant discretion to make judgment calls throughout the course of their
investigations, including with respect to publishing information concerning
violations. See 15 U.S.C. § 78u(a)(1). Under Gaubert, we presume that the
policy-implementing employees’ decisions during the investigation, including their
decision to post the litigation release and whistleblower notice, were “grounded in
policy,” 499 U.S. at 324, and the allegations in Ratheal’s complaint provide no basis
for concluding otherwise. See also Dalehite v. United States, 346 U.S. 15, 36 (1953)
(“Where there is room for policy judgment and decision there is discretion. It
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necessarily follows that acts of subordinates in carrying out the operations of
government in accordance with official directions cannot be actionable.”), partially
overruled on other grounds by Rayonier, Inc. v. United States, 352 U.S. 315 (1957). 6
Accordingly, the design/implementation distinction did not save Ratheal’s claims,
and the district court properly dismissed them under the discretionary function
exception. See Garling, 849 F.3d at 1296 (recognizing that when Congress delegates
broad authority to an agency to implement and enforce federal laws, the discretionary
function exception bars tortious investigation claims where no statutes, regulations,
or policies prescribe “a specific course of action for [agency] employees to follow in
investigating potential [] violations”).
III. CONCLUSION
We affirm the district court’s judgment dismissing the complaint under
Rule 12(b)(1) for lack of subject matter jurisdiction.
Entered for the Court
Carolyn B. McHugh
Circuit Judge
6 Even the Ninth Circuit does not apply the design/implementation distinction
in the context of government investigations like the one at issue here. See Gonzalez
v. United States, 814 F.3d 1022, 1035 (9th Cir. 2016) (affirming discretionary
function dismissal of claims based on decisions made during the course of an FBI
investigation and declining to apply design/implementation distinction, explaining
that “agents responsible for following the Attorney General’s Guidelines are still
imbued with an enormous amount of discretion and judgment in the course of their
investigations.”).
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