The discretionary function exception covers only acts that are discretionary in nature, acts that involve an element of judgment or choice. It is the nature of the conduct, rather than the status of the actor that governs whether the exception applies. The requirement of judgment or choice is not satisfied if a federal statute, regulation, or policy specifically prescribes a course of action for an employee to follow, because the employee has no rightful option but to adhere to the directive.
The Federal Home Loan Bank Board (FHLBB), which was empowered under the former 12 USCS 1464(a) (later repealed) to regulate federal savings and loan associations, and the Federal Home Loan Bank-Dallas (FHLB-D), an agency established by the FHLBB under the former 12 USCS 1423 (later repealed), sought to have a Texas-chartered and federally insured savings and loan association merge with a second, failing Texas thrift institution. Because the federal regulators were concerned about certain financial dealings of the savings and loan's chairman, who was also the largest shareholder, the regulators requested that the chairman (1) sign an agreement that effectively removed him from management, and (2) post security for his personal guarantee that the savings and loan's net worth would exceed regulatory minimums. The chairman agreed to these conditions, and the regulators provided regulatory and financial advice to enable the savings and loan to consummate the merger. Subsequently, the regulators threatened to close the savings and loan unless its management and board of directors were replaced. New officers and directors, recommended by the FHLB-D, took over. Shortly after taking over, the new directors announced that the savings and loan had a substantial negative net worth. The former chairman, filing an administrative tort claim with the FHLBB, the FHLB-D, and the Federal Savings and Loan Insurance Corporation, sought damages for the lost value of his shares and for the property that he had forfeited under his personal guarantee. After the administrative claim was denied, the former chairman filed suit in the United States District Court for the Northern District of Texas under the Federal Tort Claims Act (FTCA), in which suit he sought damages for the alleged negligence of the federal regulators in selecting the new officers and directors and in participating in the day-to-day management of the savings and loan. The District Court, granting a motion to dismiss, found that all the challenged actions of the regulators fell within the "discretionary function" exception of the FTCA (28 USCS 2680(a)). On appeal, the United States Court of Appeals for the Fifth Circuit reversed the dismissal of the claims that concerned the regulators' activities after their assumption of a supervisory role in the savings and loan's day-to-day affairs, on the ground that such actions were "operational actions," rather than "policy decisions," and thus did not fall within the discretionary function exception.
Were federal bank regulators within the discretionary function exception of the Federal Tort Claims Act, 28 U.S.C.S. §§ 1346(b),2671 et seq., for supervisory activities undertaken in advising and overseeing operation of a thrift institution?
The Court found that under 28 U.S.C.S. § 2680, FTCA's discretionary function exemption applied to the nature of conduct and covered discretionary actions involving an element of judgment or choice including decisions made at the operational or management level of a bank. The Court, in addressing respondent's negligence claims, determined that federal regulators had discretion to supervise through informal means, rather than invoke statutory sanctions, thus were not negligent. The Court reversed and remanded the judgment of the appeals court.