James and Elizabeth Console Family v. United States

• Court: District Court, S.D. California
• Decided: September 18, 2023
• Docket: 3:23-cv-00652
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 JAMES AND ELIZABETH CONSOLE Case No.: 23-cv-652-DMS-BLM FAMILY, 12 ORDER GRANTING DEFENDANT’S Plaintiffs, 13 MOTION TO DISMISS v. 14 UNITED STATES, 15 Defendant. 16 17 18 Pending before the Court is Defendant United States of America’s (“Defendant”) 19 motion to dismiss Plaintiffs James and Elizabeth Console’s (“Plaintiffs”) Complaint for 20 lack of subject matter jurisdiction and failure to state a claim under Rules 12(b)(1) and 21 (b)(6), respectively, of the Federal Rules of Civil Procedure. (ECF No. 6). Plaintiffs 22 concurrently filed an opposition (ECF No. 10) and a First Amended Complaint (ECF No. 23 12) (“FAC”), Defendant filed a reply (ECF No. 16), and Plaintiffs thereafter filed both a 24 surreply (ECF No. 18) and supplemental memorandum (ECF No. 19).1 For the following 25 26 1 Defendant responded to Plaintiffs’ FAC in its reply brief, (ECF No. 16), so the Court will address the 27 FAC and treat it as the operative pleading. In addition, although Plaintiffs’ surreply and supplemental memorandum are procedurally improper, Plaintiffs are proceeding pro se and Defendant did not object to 28 1 reasons, the Court finds it lacks subject matter jurisdiction and grants Defendant’s motion 2 to dismiss.2 3 I. 4 BACKGROUND 5 The genesis of Plaintiffs’ complaint is an alleged “Ponzi-type” scheme which 6 defrauded Plaintiffs out of their IRA retirement accounts. (FAC at 2–3.) The perpetrators 7 of a number of these fraudulent schemes are Jacob Cooper (“Mr. Cooper”), Robert Stinson 8 Jr. (“Mr. Stinson”), Anthony Mark Hartman (“Mr. Hartman”), Terrence Goggin (“Mr. 9 Goggin”), and James Bramlette (“Mr. Bramlette”). These individuals have been embroiled 10 in civil and criminal litigation for many years as a result of their business activities.3 11 Plaintiffs have been unsuccessful in recovering their losses from these individuals and 12 blame the United States in the present litigation for this failure. Plaintiffs allege the United 13 States through various employees wrongfully delayed or declined to bring criminal charges 14 against one or more of the alleged fraudsters, mishandled criminal cases that it did file, and 15 failed to timely warn or share information with Plaintiffs about these fraudsters, thereby 16 causing economic and emotional harm to Plaintiffs. 17 18 those filings. The Court therefore elects to consider both filings in the interests of justice and for efficiency 19 purposes. 2 The Court declines to reach Defendant’s other arguments under Fed. R. Civ. P. 12(b)(6) (failure to state 20 a claim) in light of the dismissal under Rule 12(b)(1). 3 See, e.g., SEC v. Bramlette, et al., No. 2:18-cv-761 (D. Utah 2018) (lawsuit against Mr. Cooper, Mr. 21 Bramlette, and others, based on an alleged Ponzi scheme defrauding investors out of retirement savings); People v. Jacob Keith Cooper, No. SCD2711154 (S.D. Super. Ct. 2017) (state criminal case charging Mr. 22 Cooper with conspiracy, misrepresentations of sale, and elder theft); Kamian Schwartzman v. Jomac, LLC, 23 et al., No. 2:10-cv-3130 (E.D. Pa. 2011) (lawsuit against Mr. Cooper and others to secure receivership property for the benefit of investors from the companies involved in the alleged Ponzi scheme); United 24 States v. Anthony Hartman, No. 2:19-cr-347 (D.S.C. 2019) (federal criminal case charging Mr. Hartman with fraud); United States v. James Bramlette, No. 2:19-cr-347 (D.S.C. 2019) (federal criminal case 25 charging Mr. Bramlette with fraud); United States v. Terrence Goggin, No. 4:18-cr-415 (N.D. Cal. 2018) (federal criminal case charging Mr. Goggin with fraud); SEC v. Total Wealth Mgmt., Inc., et al., No. 15- 26 cv-226 (S.D. Cal. 2015) (SEC lawsuit against Total Wealth Management “TWM” and Jacob Cooper for 27 fraud); Seaman v. Private Placement Capital Notes II, LLC, No. 16-cv-578 (S.D. Cal. 2016) (lawsuit for fraud and breach of contract). 28 1 Specifically, Plaintiffs allege that Mr. Cooper was their financial advisor at Total 2 Wealth Management (“TWM”) beginning in 2011. Plaintiffs allege that Cooper and his 3 co-conspirators targeted seniors and used their scheme to defraud victims out of their IRAs 4 and other retirement accounts. Plaintiffs further allege that Cooper was involved in a 5 federal criminal case in Philadelphia in 2010, where he “had been bringing investor 6 money” to co-conspirator Stinson, who is “a felon and securities fraud recidivist.” (FAC 7 at 3–4.) Plaintiffs allege Stinson was tried and sentenced in that case to 33 years as a 8 recidivist offender, and that all of this happened shortly before Plaintiffs moved their IRA 9 accounts over to Cooper in 2011. (Id. at 4.) Plaintiffs fault the government for allowing 10 Cooper to continue “operating a Ponzi-type scheme” when they knew he was complicit 11 with Stinson, which “left [Plaintiffs] vulnerable to his fraudulent conduct” in 2011 and 12 thereafter. (Id. at 5.) Plaintiffs further fault federal prosecutors for not bringing criminal 13 charges against Cooper, particularly since the SEC had filed a civil lawsuit and “shut 14 down” Cooper and TWM in 2015. (Id.) Finally, Plaintiffs attribute the same kind of 15 wrongdoing to the government with respect to Hartman, who allegedly defrauded investors 16 out of $34 million dollars and “who was also allowed by … Government employees to 17 continue his scheme to defraud until April 9th, 2019,” when he was finally indicted some 18 “4 years after his crimes against [Plaintiffs] were discovered.” (Id. at 6.) Plaintiffs allege 19 federal prosecutors excluded them from the criminal investigations and cases, and 20 ultimately allowed Hartman to plead to a reduced charge and enter Pretrial Diversion—a 21 program for which Plaintiffs argue Hartman was “not eligible.” (Id. at 7.) 22 Plaintiffs describe several instances of communication between themselves, the 23 SEC, various individuals within United States Attorneys’ Offices (“USAO”) in California 24 and South Carolina, the Department of Justice (“DOJ”), and the Federal Bureau of 25 Investigation (“FBI”). In an attempt to gather more information, Plaintiffs filed Freedom 26 of Information Act (“FOIA”) requests, which were allegedly denied. Plaintiffs also filed 27 an administrative complaint with DOJ outlining the same grievances, and a separate 28 administrative complaint with the FBI Sorrento Valley field office detailing concerns about 1 possible government corruption. After receiving no response from the government, 2 Plaintiffs filed this suit. 3 II. 4 LEGAL STANDARD 5 A federal court is a court of limited jurisdiction and possesses “only the power that 6 is authorized by Article III of the Constitution and the statutes enacted by Congress 7 pursuant thereto.” Bender v. Williamsport Area Sch. Dist., 475 U.S. 535, 541 (1986). 8 Under Federal Rule of Civil Procedure 12(b)(1), a party may move to dismiss for lack of 9 subject matter jurisdiction. See Fed. R. Civ. P. 12(b)(1). When ruling on such a motion, a 10 court may consider extrinsic evidence beyond the face of the complaint. Wolfe v. 11 Stankman, 392 F.3d 358, 362 (9th Cir. 2004). A challenge for lack of subject matter 12 jurisdiction “may be raised by a party, or by a court on its own initiative, at any stage in 13 the litigation, even after trial and the entry of judgment.” Arbaugh v. Y&H Corp., 546 U.S. 14 500, 506 (2006). A federal court must dismiss an action if it “determines at any time that 15 it lacks subject-matter jurisdiction.” Fed. R. Civ. P. 12(h)(3). 16 III. 17 DISCUSSION 18 Claims brought against the United States sounding in tort are governed by the 19 Federal Torts Claim Act (“FTCA”). See 28 U.S.C. § 2680. The United States must consent 20 to being sued through waiver of its immunity. McGuire v. United States, 550 F.3d 903, 21 910 (9th Cir. 2008) (stating “the United States is a sovereign, and, as such, is immune from 22 suit unless it has expressly waived such immunity and consented to be sued.”) In the 23 subject litigation, Plaintiffs’ principal claim is for negligence under the FTCA. (See, e.g., 24 FAC at 11 (“The plaintiffs[] believe that the FTCA … is an appropriate remedy for the 25 injuries sustained by the negligent actions of [Defendant’s] employees.”)) Defendant 26 contends waiver of sovereign immunity under the FTCA is limited and subject to several 27 exceptions, “including the discretionary function and misrepresentation exceptions, which 28 apply here.” (Def. Mot. at 4, ECF No. 6.) The Court agrees. 1 A. Discretionary Function Exception 2 It is well-settled that the United States may not be sued for “any claim . . . based 3 upon the exercise or performance or the failure to exercise or perform a discretionary 4 function or duty on the part of a federal agency or an employee.” 28 U.S.C. § 2680(a). 5 This exception applies to all government employees, including prosecutors in criminal 6 cases. See Gray v. Bell, 712 F.2d 490, 513 (1983) (stating “prosecutorial decisions as to 7 whether, when and against whom to initiate prosecution are quintessential examples of 8 governmental discretion in enforcing the criminal law, and, accordingly, courts have 9 uniformly found them to be immune under the discretionary function exception.”). In 10 addition, prosecutorial negligence in handling criminal cases, as Plaintiffs allege, is 11 “irrelevant to the discretionary function inquiry.” Kennewick Irrigation Dist. v. United 12 States, 880 F.2d 1018, 1029 (9th Cir. 1989). Instead, there is a two-step inquiry to 13 determine whether the discretionary function exception applies. Nurse v. United States, 14 226 F.3d 996, 1001 (9th Cir. 2000). 15 First, “the court must determine whether the challenged conduct involves an element 16 of judgment or choice” by the defendant. Id. at 1001 (citing Berkovitz v. United States, 17 486 U.S. 531, 536 (1988)). Second, if the “conduct involves some element of choice, the 18 court must determine whether the conduct implements social, economic or political policy 19 considerations.” Nurse, 226 F.3d at 1001. “If the challenged action satisfies both of these 20 two prongs, that action is immune from suit—and federal courts lack subject matter 21 jurisdiction—even if the court thinks the government abused its discretion or made the 22 wrong choice.” Green v. United States, 630 F.3d 1245, 1249–50 (9th Cir. 2011). The 23 “government bears the ultimate burden of establishing that the exception applies.” Id. at 24 1248–49. 25 At step one the court must determine whether the challenged conduct involves an 26 element of judgment or choice. Nurse, 226 F.3d at 1001 (citing Berkovitz v. United States, 27 486 U.S. 531, 536 (1988)). “This inquiry looks at the ‘nature of the conduct, rather than 28 the status of the actor’ and the discretionary element is not met where ‘a federal statute, 1 regulation, or policy specifically prescribes a course of action for an employee to follow.’” 2 Esquivel v. United States, 21 F.4th 565, 573 (9th Cir. 2021) (quoting Berkovitz, 486 U.S. 3 at 536). If a statute or policy requires certain action, the inquiry ends. Id. 4 The challenged conduct here is the USAO (District of South Carolina) excluding 5 Plaintiffs as victims in Mr. Hartman’s criminal case by indicting him on reduced charges, 6 offering Mr. Hartman pretrial diversion, and subsequently dismissing his case; the USAO 7 (Southern District of California) not being transparent about federal investigations, 8 including investigations into Mr. Cooper and electing not to charge him; and the USAO 9 (Northern District of California) offering Mr. Goggin a plea deal, which resulted in 10 Plaintiffs not being victims of the charged offense and unable to testify regarding 11 restitution. 12 Plaintiffs argue the Crime Victims’ Rights Act (“CVRA”), Victims’ Rights and 13 Restitution Act (“VRRA”), and Principles of Federal Prosecution provide “obligations 14 under state laws and federal mandates” that require certain action by government actors, 15 and thus, the discretionary element of step one is not met. (Pls. Oppo. at 5, ECF No. 10.) 16 Initially, Plaintiffs argue the various decisions, or lack thereof, by government employees 17 run afoul of the Principles of Federal Prosecution published by DOJ in its Justice Manual 18 9-27.000 (2018). Plaintiffs contend government actors and entities did not follow these 19 Principles. However, the Principles of Federal Prosecution state they “are not intended to 20 create a substantive or procedural right or benefit, enforceable at law, and may not be relied 21 upon by a party to litigation with the United States.” Id. § 9-27.150. Moreover, the 22 Principles state they are “intended solely for the guidance of attorneys for the government.” 23 Id. § 9-27.150 (emphasis added). As such, the Principles of Federal Prosecution do not 24 prescribe a course of action that removes discretion from prosecutors in handling criminal 25 cases. 26 Plaintiffs also attempt to use the CVRA and VRRA to rebut the government’s 27 argument that the discretionary function exception applies. The CVRA provides rights to 28 crime victims in federal proceedings. See 18 U.S.C. § 3771(a). It requires government 1 employees “engaged in the detection, investigation, and prosecution of crime” to “make 2 their best efforts” to see that crime victims are afforded the rights set forth in § 3771(a). 3 Id. § 3771(c)(1). It further provides the procedure in which a victim may be heard and 4 pursue recourse. See id. § 3771(d). However, the CVRA states it does not “imply any duty 5 or obligation to any victim or other person for the breach of which the United States or any 6 of its officers or employees could be held liable in damages[,]” id. §3771(d)(6), and that it 7 shall not “be construed to impair the prosecutorial discretion of the Attorney General or 8 any officer under his direction.” Id. Similarly, the VRRA “does not create a cause of 9 action or defense in favor of any person arising out of the failure of a responsible person to 10 provide information.” 34 U.S.C. § 20141(d). Thus, the CVRA and VVRA do not restrict 11 prosecutorial discretion and do not create any specific duty or obligation to victims for the 12 breach of which the United States could be held liable. Because the challenged conduct 13 here involves matters of prosecutorial discretion and judgment, and not conduct prescribed 14 by policy or statute, step one is met.4 15 At step two, the Court must determine whether the conduct at issue implicates social, 16 economic or political policy considerations. Nurse, 226 F.3d at 1001. The exception 17 protects government action premised on such considerations. Esquivel, 21 F.4th at 574. 18 “Where the government agent is exercising discretion, ‘it must be presumed that the agent’s 19 acts are grounded in policy when exercising that discretion.’” Id. (quoting Gaubert, 499 20 U.S. at 324). 21 22 4 To the extent Plaintiffs are attempting to use the CVRA and VVRA as independent causes of action, 23 they are barred from doing so. Neither the CVRA nor the VVRA provides a private cause of action. See 18 U.S.C. § 3771(d)(6) (stating “[n]othing in this chapter shall be construed to authorize a cause of action 24 for damages . . .”); 34 U.S.C. § 20141(d) (stating “[t]his section does not create a cause of action . . .”). See also In re Wild, 994 F.3d 1244, 1256 (11th Cir. 2021) (stating Congress did not through the CVRA 25 “authorize crime victims to file stand-alone civil actions.”) The same is true for Plaintiffs’ attempted use 26 of California’s Marsy’s Law, which provides crime victims certain rights. See Cal. Const. art. I, § 28(b). Like the CVRA and VVRA, Marsy’s Law “does not create any cause of action for compensation or 27 damages against” the government. Id. § 28(c)(2). 28 1 “The investigation and prosecution of crime has long been a core responsibility of 2 the executive branch.” Gonzalez v. United States, 814 F.3d 1022, 1028 (9th Cir. 2016). 3 “Courts have consistently held that where, as here, a government agent’s performance of 4 an obligation requires that agent to make judgment calls, the discretionary function 5 exception applies.” Id. at 1029. When “harm actually flows from the prosecutor’s exercise 6 of discretion, an attempt to recharacterize the action as something else must fail.” Gen. 7 Dynamics Corp. v. United States, 139 F.3d 1280, 1286 (9th Cir. 1998). 8 A prosecutor’s investigation, charging decisions, plea bargaining, and evaluation of 9 eligibility for a diversion program are all grounded in policy considerations. So too is the 10 decision-making of the USAO and federal law enforcement agencies concerning when, and 11 to whom, to disclose the existence of an investigation or proceeding. See Dichter-Mad 12 Family Partners, LLP v. United States, 707 F. Supp. 2d 1016, 1051 (C.D. Cal. 2010), aff’d 13 Dichter-Mad Family Partners, LLP v. United States, 709 F.3d 749 (9th Cir. 2013) 14 (dismissing case because discretionary function exception barred investors’ claims against 15 SEC for its investigators’ failure to discover Ponzi scheme and publicize or prosecute it). 16 Here, Plaintiffs’ claims stem entirely from their dissatisfaction with the manner in 17 which prosecutors exercised discretion. Plaintiffs claim their family was wrongfully 18 excluded as victims in the criminal case against Mr. Hartman based on the types of charges 19 filed, which prejudiced and harmed them. Plaintiffs assert that Mr. Hartman was afforded 20 the opportunity to participate in a diversion program, for which he was not eligible. (See 21 Hartman, 19-cr-347, at ECF Nos. 196, 199.)5 Plaintiffs argue that “[w]ho knew and 22 approved the decision to create a Diversion Program for Mr. Hartman … should be made 23 available information.” (Id. at 15-16.) Plaintiffs further note their discontent with Mr. 24 Hartman’s case being dismissed and believe it is “another example of the Government 25 26 5 On July 12, 2023, the United States moved to dismiss the indictment against Mr. Hartman due to his 27 successful participation in the pretrial diversion program. (Id. at ECF No. 234.) The district court granted the motion and dismissed the indictment without prejudice against Mr. Hartman on July 17, 2023. (Id. at 28 ECF No. 235.) 1 Employees wrongdoing, [and] it has a direct impact on the Plaintiffs’ as it will make finding 2 and collecting from the Defendant, Mr. Hartman, highly unlikely.” (Pls. Supp. Mem. at 6, 3 ECF No. 19.) However, as discussed, prosecutors have wide discretion in handling cases, 4 including determining the scope of investigation and whether, when, and the types of 5 charges, to file. Prosecutorial discretion is defined as “[a] prosecutor’s power to choose 6 from the options available in a criminal case, such as filing charges, prosecuting, not 7 prosecuting, plea-bargaining, and recommending a sentence to the court.” Prosecutorial 8 Discretion, Black’s Law Dictionary (10th ed. 2014). “The decision of whether or not to 9 prosecute a given individual is a discretionary function for which the United States is 10 immune from liability.” Wright v. United States, 719 F.2d 1032, 1035 (9th Cir. 1983). See 11 also United States v. Nixon, 418 U.S. 683, 693 (1974) (stating decision whether to 12 prosecute is discretionary and protected). So, too, here. 13 And the same is true with Mr. Goggin. Plaintiffs allege they were notified by the 14 DOJ Victims Notification System that they were victims of Mr. Goggin. (FAC at 8.) 15 Plaintiffs had discussions with a Victim Witness Specialist in the U.S. Attorney’s office 16 regarding the criminal case. (Id.) Plaintiff Elizabeth Console alleges she spoke with a 17 Victims’ Rights Ombudsman (“VRO”) at DOJ. (Id. at 9.) Plaintiffs further allege the VRO 18 called the Northern District of California division of the USAO and confirmed that “the 19 charged offense removed our rights as victims.” (Id.) The VRO allegedly explained to 20 Plaintiffs that she, the VRO, “has no authority to do anything about the decisions that the 21 prosecutor and the court decided.” (Id.) Because Mr. Goggin accepted a plea deal for 22 money laundering, and Plaintiffs assert they were not victims of his money laundering 23 offense, they had no right to be heard or have restitution ordered. (Id. at 9.) 24 While the Court is sympathetic to Plaintiffs’ frustrations, the conduct of which 25 Plaintiffs complain falls squarely within the prosecutorial discretion afforded to the 26 USAOs. Therefore, all claims derived from the exercise of prosecutorial discretion are 27 barred under the discretionary function exception and dismissed with prejudice. 28 / / / 1 B. Misrepresentation by Omission 2 Defendant asserts that part of Plaintiffs’ allegations sound not in negligence, but 3 rather in the tort of misrepresentation by omission for which there is no waiver of 4 immunity. See 28 U.S.C. § 2680(h) (stating waiver of sovereign immunity under FTCA 5 does not apply to claims “arising out of … misrepresentation”). By extension, the FTCA 6 bars claims for misrepresentation by omission. See Lawrence v. United States, 340 F.3d 7 952, 958 (9th Cir. 2003) (affirming dismissal because the “misrepresentation exception 8 shields government employees from tort liability for failure to communicate information, 9 whether negligent or intentional.”). To determine if a claim arises out of misrepresentation, 10 it is necessary to look “beyond the labels used to determine whether a proposed claim is 11 barred.” Thomas-Lazear v. United States, 851 F.2d 1202, 1207 (9th Cir. 1988). 12 Plaintiffs allege the failure to warn or share information regarding Messrs. Cooper 13 and Stinson, and other alleged co-conspirators, was a proximate cause of Plaintiffs’ injury. 14 In part, Plaintiffs’ suit is based on the theory that government actors failed to timely advise 15 them of the criminal activities in the underlying fraudulent schemes perpetrated by Cooper, 16 Stinson, and others. At bottom, Plaintiffs contend government employees in the USAOs— 17 and perhaps the SEC and FBI—did not share information with Plaintiffs, either negligently 18 or intentionally, thereby harming them.6 Such conduct, however, is immune from suit 19 under the FTCA. See Lawrence, 940 F.3d at 958 (affirming dismissal against U.S. 20 Marshals for failure to inform state agency of a felon’s full criminal background, which 21 allowed felon access to employment where he sexually assaulted the plaintiff); Redmond 22 23 6 Plaintiffs named only the United States as a defendant in the present action. It is unclear precisely who 24 Plaintiffs blame for failing to communicate information among the various prosecutors, and SEC and FBI employees. Plaintiffs, for example, allege they “filed a complaint with the FBI, Sorrento Valley 25 department about [their] suspicion of probable public corruption with regards to the handling of Mr. Hartman’s case in SC” and “have not had any transparency about that complaint and whether there is an 26 investigation or not.” (FAC at 17.) Nevertheless, for the reasons stated, any claim based on this theory 27 of liability against any government employee referenced in the FAC must be dismissed for lack of jurisdiction. 28 1 || v. United States, 518 F.2d 811 (7th Cir. 1975) (affirming dismissal based on SEC’s failure 2 ||to disclose a securities dealer’s criminal history, resulting in plaintiff being defrauded). 3 Therefore, to the extent Plaintiffs’ claim is based on government actors failing to 4 ||communicate information, the Court lacks jurisdiction under 28 U.S.C. § 2680(h). 5 C. Futility of Leave to Amend 6 Courts “should freely give leave [to amend] when justice so requires.” Fed. R. Civ. 7 ||P. 15(a). Leave to amend should “be applied with extreme liberality.” Owens v. Kaiser 8 || Found. Health Plan, Inc., 244 F.3d 708, 712 (9th Cir. 2001). Dismissal without leave to 9 |}amend is proper only if it is clear that “the complaint could not be saved by any 10 ||amendment.” Jntri-Plex Techs. v. Crest Group, Inc., 499 F.3d 1048, 1056 (9th Cir. 2007). 11 || However, leave to amend need not be granted where, as here, “the amendment of the 12 ||}complaint ... constitutes an exercise in futility.” Ascon, 866 F.2d at 1160. It is clear that 13 || Plaintiffs’ allegations against Defendant all arise from protected discretionary acts of 14 ||government employees during the course of the underlying investigations and 15 || prosecutions, and their alleged failure to communicate information. The Court therefore 16 || declines leave to amend as futile. M7 IV. 18 CONCLUSION AND ORDER 19 || For the foregoing reasons, Defendant’s motion to dismiss based on lack of subject matter 20 ||jurisdiction is GRANTED. Plaintiffs’ First Amended Complaint is DISMISSED with 21 || prejudice. 22 IT IS SO ORDERED. 23 Dated: September 18, 2023 , re 24 Hon. Dana M. Sabraw, Chief Judge 95 United States District Court 26 27 28 11