United States v. Gaubert

Supreme Court of the United States
499 U.S. 315 (1991)

ELI5:

Rule of Law:

Government actions are protected by the discretionary function exception of the Federal Tort Claims Act if the actions involve an element of judgment or choice and are grounded in considerations of public policy, regardless of whether they occur at a high-level planning stage or a lower-level operational stage.

Facts:

Thomas M. Gaubert was the chairman of the board and largest shareholder of Independent American Savings Association (IASA), a Texas-chartered savings and loan.
In 1984, federal regulators, including the Federal Home Loan Bank Board (FHLBB), sought to have IASA merge with a failing thrift and required Gaubert to sign a 'neutralization agreement' removing him from IASA's management.
As a condition of the merger, Gaubert also posted a $25 million interest in real property as a personal guarantee that IASA's net worth would meet regulatory minimums.
In 1986, regulators threatened to close IASA unless its board of directors was replaced; the directors resigned, and the regulators recommended new officers and directors who were subsequently installed.
Following the management change, regulators became extensively involved in IASA's day-to-day business, advising on hiring consultants, placing subsidiaries into bankruptcy, mediating salary disputes, and reviewing litigation drafts.
The new management, acting on the regulators' advice, soon announced that IASA had a substantial negative net worth.
As a result of IASA's failure, Gaubert lost his investment and forfeited the $25 million property he had posted as a guarantee.

Procedural Posture:

Thomas M. Gaubert filed an administrative tort claim with the Federal Home Loan Bank Board and other related agencies, which was denied.
Gaubert filed suit against the United States in the U.S. District Court for the Northern District of Texas under the Federal Tort Claims Act (FTCA).
The District Court granted the United States' motion to dismiss, holding that all of the regulators' challenged actions fell within the FTCA's discretionary function exception.
Gaubert, as appellant, appealed to the U.S. Court of Appeals for the Fifth Circuit.
The Court of Appeals affirmed in part and reversed in part, finding that high-level policy decisions were protected but that the regulators' 'operational' involvement in IASA's day-to-day affairs was not.
The United States, as petitioner, successfully sought a writ of certiorari from the U.S. Supreme Court.

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Issue:

Do the actions of federal regulators in supervising and managing the day-to-day operations of a savings and loan institution fall within the discretionary function exception of the Federal Tort Claims Act, thus immunizing the United States from a lawsuit alleging negligence?

Opinions:

Majority - Justice White

Yes. The actions of the federal regulators fall within the discretionary function exception because they involved judgment grounded in public policy. The exception covers acts that are discretionary in nature, meaning they involve an element of judgment or choice, and are based on considerations of public policy. The Court rejected the lower court's distinction between 'planning' and 'operational' activities, stating that discretionary conduct is not confined to the policy level. Here, the relevant statutes gave regulators broad authority to supervise thrift institutions to protect the federal insurance fund, but did not mandate a specific course of action. The regulators' decisions to supervise IASA through informal means and to become involved in its day-to-day management were choices grounded in the economic policy of stabilizing a failing institution and the broader savings and loan industry. Therefore, these actions, even if negligent, are shielded from tort liability.

Concurring - Justice Scalia

Yes. The challenged actions are protected by the discretionary function exception. Instead of analyzing each individual act, the proper approach is to recognize that the regulators' actions were conditions imposed on IASA to avoid a formal government takeover. The decision to take over a financial institution is a quintessential discretionary function grounded in economic and social policy. Consequently, the decision to set the conditions under which the government will refrain from taking over an institution is also a protected exercise of policymaking discretion. All of the regulators' challenged day-to-day involvement was, in effect, part of the set of conditions for allowing IASA to remain independent, and is therefore shielded from liability.

Analysis:

This decision significantly broadens the protection afforded to the government by the discretionary function exception. By rejecting the distinction between 'operational' and 'planning' level acts, the Court made it more difficult to sue the government for negligence in its regulatory activities. The ruling establishes a strong presumption that when a statute grants an agency discretion, its actions are grounded in policy. This precedent protects regulators' ability to use a wide range of informal, hands-on supervisory tools to manage crises without the fear of 'judicial second-guessing' through tort litigation, thereby solidifying governmental immunity in complex regulatory fields.

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