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Lipkin v. United States Securities and Exchange Commission

December 22, 2006



In this action, pro se plaintiffs Michael Lipkin and Joshua Shainberg allege that, during a civil enforcement action brought against them in the United States District Court for the Eastern District of New York by the Securities and Exchange Commission ("SEC") in 1999, SEC attorneys Jack Kaufman and Bohdan S. Ozaruk defamed Lipkin and Shainberg, lied to the court, and concealed exculpatory evidence. The enforcement action culminated in a jury verdict against Lipkin and Shainberg, and the court issued a final judgment that included disgorgement, prejudgment interest, and civil penalties. See SEC v. Lipkin, No. 99 Civ. 7357 (VVP), 2006 U.S. Dist. LEXIS 10496, 2006 WL 435035, at *1 (E.D.N.Y. Jan. 9, 2006). That judgment is currently the subject of an appeal. See SEC v. Shainberg, No. 06-0384 (2d Cir. filed Jan. 25, 2006). Shortly thereafter, plaintiffs filed the instant action against the SEC, Kaufman, and Ozaruk, seeking compensatory, exemplary, and punitive damages and various types of injunctive relief.

Defendants move to dismiss the Complaint for lack of subject matter jurisdiction [8]. In a Report and Recommendation ("Report") dated November 9, 2006, Magistrate Judge Gabriel W. Gorenstein recommended that the Court grant defendants' motion and dismiss the Complaint with prejudice. For the reasons stated below, the Court adopts Judge Gorenstein's Report in its entirety and rejects plaintiffs' objections. The facts underlying the instant action are discussed in greater detail in the Report, familiarity with which is assumed, and which is attached to this opinion for ease of reference. [Ed. note: the Report is not available here.]


On a potentially dispositive motion, the district court must review de novo those portions of the report to which objection is made. See 28 U.S.C. § 636(b)(1)(C) (2006); United States v. Male Juvenile, 121 F.3d 34, 38 (2d Cir. 1997). However, "[i]f no objections are filed, or where objections are merely perfunctory responses, argued in an attempt to engage the district court in a rehashing of the same arguments set forth in the original petition, reviewing courts should review a report and recommendation for clear error." Edwards v. Fischer, 414 F. Supp. 2d 342, 346--47 (S.D.N.Y. 2006) (internal quotation marks and citations omitted). Here, plaintiffs object to the Report's conclusion that they must file an administrative claim with the SEC before seeking monetary damages under the Federal Tort Claims Act ("FTCA"). Plaintiffs object to the Report's conclusion that they were free to challenge any claimed misconduct by making an application to the trial court or raising the issue on appeal, and thus they now are barred from bringing a Bivens claim for monetary damages. The Court reviews de novo these portions of the Report.

1. FTCA Claim

The Report concludes that where, as here, tort claims are asserted against federal employees acting within the scope of their employment, the United States should be substituted as the proper defendant under the Federal Tort Claims Act. See 28 U.S.C. § 2679(d)(1) ("Upon certification by the Attorney General that the defendant employee was acting within the scope of his office or employment[,] . . . any civil action . . . shall be deemed an action against the United States . . . and the United States shall be substituted as the party defendant."). The Report further concludes that any claims brought under the FTCA are barred nonetheless because plaintiffs have failed to submit an administrative claim to the SEC. See 28 U.S.C. § 2675(a) ("An action shall not be instituted upon a claim against the United States for money damages . . . unless the claimant shall have first presented the claim to the appropriate Federal agency . . . ."). "Absent compliance with the statute's requirements the action is barred by sovereign immunity and the district court had no subject matter jurisdiction." Wyler v. United States, 725 F.2d 156, 159 (2d Cir. 1983); see Millares Guiraldes de Tineo v. United States, 137 F.3d 715, 719 (2d Cir. 1998) (holding that the predicate claim filed with the federal agency must meet the "specific statutory requirements as to its form, content, and timing"). Although plaintiffs do not object to the Report's conclusion that they never filed an administrative claim with the SEC, they state:

It is not the intention of the Plaintiffs to file a form with the SEC and have the [defendants'] supervisors investigate them. In fact these individuals received a complaint but have decided to deny that fact. How can such an investigation continue with this type of attitude and blatant mistruths? (Objections 1.) Plaintiffs appear to be asking the Court to recognize an exception to the exhaustion requirement because filing an administrative claim would be futile. However, the Second Circuit has held in a similar context that "[u]ntil the Commission has acted and actual bias has been demonstrated, the orderly administrative procedures of the agency should not be interrupted by judicial intervention." Touche Ross & Co. v. SEC, 609 F.2d 570, 575 (2d Cir. 1979) (affirming district court's dismissal of an action for injunctive relief from an ongoing SEC administrative proceeding where plaintiff alleged agency bias but had not exhausted administrative remedies). Plaintiffs cite no precedent, and this Court is aware of none, in which a district court has permitted a plaintiff to proceed with an FTCA claim without exhausting administrative remedies.

However, even if this Court were to find that plaintiffs' failure to file an administrative claim with the SEC should be excused because of agency bias, the Court adopts the Report's conclusion that plaintiffs' fraud, perjury, interference with contract, slander, "conspiracy for libel," spoliation, and concealment of evidence claims all fall outside the limited waiver of sovereign immunity provided by the FTCA. See 28 U.S.C. § 2680(h). Accordingly, plaintiffs' FTCA claims must be dismissed pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure for lack of subject matter jurisdiction.

2. Bivens Claim

The Complaint also can be construed as an action for monetary damages against defendants Kaufman and Ozaruk in their individual capacities. To the extent that this action is based on claims that sound in common-law tort, the FTCA provides federal employees with absolute immunity. See Rivera v. United States, 928 F.2d 592, 608 (2d Cir. 1991) (affirming dismissal of common-law tort claims on the ground that the FTCA gave federal law enforcement agents absolute immunity from a suit for damages because the agents were acting within the scope of their employment); see also 28 U.S.C. § 2679(b)(1). However, the FTCA does not apply to suits for violations of federal constitutional rights. See 28 U.S.C. § 2679(b)(2). Thus, for plaintiffs' claims against Kaufman and Ozaruk to survive a motion to dismiss, plaintiffs must allege a constitutional wrong under Bivens v. Six Unknown Named Agents of Federal Bureau of Narcotics, 403 U.S. 388 (1971).

As Judge Gorenstein observed, the Complaint may be liberally construed to allege that the individual defendants intentionally, or at least negligently, engaged in misconduct during the enforcement action that resulted in a deprivation of plaintiffs' property interests (disgorgement, interest, and penalties). However, the Second Circuit has held that "the negligent or intentional deprivation of property through the random and unauthorized acts of a state or federal employee does not constitute a deprivation of due process if 'a meaningful post-deprivation remedy for the loss is available.'" Stuto v. Fleishman, 164 F.3d 820, 825 (2d Cir. 1999) (quoting Hudson v. Palmer, 468 U.S. 517, 533 (1984)) (holding that plaintiff, who alleged that federal employees had violated his constitutional due process rights by mishandling and terminating a claim for disability benefits, could not assert a Bivens claim for denial of constitutional due process where an array of post-deprivation remedies were available).

Here, plaintiffs had several remedies for defendants' alleged misconduct available to them. Plaintiffs could have addressed any improper conduct during the trial in an application to the trial judge, or they could have moved for a mistrial based on defendants' alleged misconduct. Cf. SEC v. Prater, 296 F. Supp. 2d 210, 218 n.3 (D. Conn. 2003) ("If Defendants believe that the SEC is engaging in improper conduct in connection with this action, they can assert that claim, but must do so by submitting evidence to that effect, not just rhetoric, and requesting appropriate relief."). After trial, plaintiffs could have moved the district court for a new trial pursuant to Federal Rule of Civil Procedure 59. See Loral Fairchild Corp. v. Victor Co. of Japan, Ltd., 208 F. Supp. 2d 344, 359 (S.D.N.Y. 2002) (holding that "a court should grant a Rule 59 motion for a new trial if it determines that prejudicial error occurred or that 'the verdict is against the weight of the evidence, that the damages are excessive, or that, for other reasons, the trial was not fair to the party moving.'" (quoting Santa Maria v. Metro-North Commuter R.R., 81 F.3d 265, 273 (2d Cir. 1996))). Alternatively, plaintiffs could have applied to the district court for relief from judgment under Federal Rule of Civil Procedure 60(b), and they were free to raise their claims on appeal.*fn1 The fact that plaintiffs might not have been able to recover under these remedies the full monetary relief that they might have received in a Bivens-type action is not determinative of the adequacy of the post-deprivation remedies. Stuto, 164 F.3d at 825. Accordingly, the Court finds that plaintiffs have already been given a full panoply of due process protections to redress any mistakes that may have occurred during the SEC enforcement action. To the extend that the allegations in the Complaint can be interpreted as a Bivens claim against the individual defendants for monetary damages, the claim must be dismissed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted.


For the reasons stated above, the Court adopts the Report, attached for ease of reference, and grants defendants' motion to dismiss [8]. The Clerk of ...

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