1 We take the allegations contained in the parties' joint pleadings as true in evaluating a

dismissal of a claim. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232-33,

81 L.Ed.2d 59 (1984). United States Court of Appeals,

Fifth Circuit.

No. 93-5366.

STATE of Louisiana, Plaintiff-Appellee,

v.

PUBLIC INVESTORS, INC., et al., Defendants,

v.

Robert L. MARRERO, Trustee of the Bankruptcy Estate of Public Investors, Inc., Appellant.

Oct. 17, 1994.

Appeal from the United States District Court for the Western District of Louisiana.

Before WISDOM, DAVIS and DUHÉ, Circuit Judges.

WISDOM, Circuit Judge:

The State o f Lo uisiana sued a bankrupt insurance holding company, and the company's

bankruptcy trustee filed a countercl aim. The State voluntarily dismissed its claim against the

company. The district court then dismissed the trustee's counterclaim against the state, holding it

barred by the State's Eleventh Amendment sovereign immunity and by the statutory "discretionary

function" exception from liabilit y of La.Rev.Stat. § 9:2798.1. The trustee appeals the dismissal of

his counterclaim. We find it unnecessary to look beyond the state statute to resolve this case, and

we AFFIRM.

I.

The parties conducted little discovery, if any, before the district court dismissed this case.

Most of the facts, however, are undisputed, because appellant Robert Marrero adopted the State's

pleadings as his own against the other named defenda nt s. The pertinent facts, as taken from the

parties' joint pleadings, are as follows. 1

Public Investors, Inc. is an insurance holding company. It is bankrupt, and appellant Marrero2 Marrero's counterclaim alleges that, of the cash proceeds of the sale, "$21,113,356.00 was

diverted to Kansas, Ohio and Nebraska insurance companies".

3 More specifically, Marrero alleges that of the proceeds of the sale, "$12,846,162.00 ... was

transferred to Midwest Life Insurance Company, then a Nebraska insurance company, which was

later re-domesticated as a Louisiana insurance company, and which is now in a liquidation

proceeding brought by the Insurance Commissioner of the State of Louisiana." is its trustee. Public Investors engaged in several dubious financial transactions with some of its

subsidiary companies and some of their officers. Some of those financial transactions were approved

in advance by o fficials of the State. Marrero's counterclaim alleges that some State officials violated

unspecified duties in approving the transactions. The two sets of transactions underlying Marrero's

counterclaim are as follows.

First, in October 1989, Public Investors sold two of its wholly owned subsidiaries (Universal

Guaranty Life Insurance Co. and Alliance Life Insurance Co.) to an o ther corporati on (First

Commonwealth Corp.) for about $26 millio n in cash plus a $10 millio n promissory note. About $21

millio n of the proceeds of that sale was diverted to insurance companies outside the State of

Louisiana. 2 About $13 million of the proceeds of the sale was diverted to another Louisiana

company. 3

Second, in a quick series of transactions over a period of about five months, Public Investors

and the other defendants sold and resold a parcel of r eal est at e t o each other, inflating the price

substantially each time. The property involved was Parkway Plaza, the site of an unfinished office

building in San Antonio, Texas. On December 14, 1988, Hicko ry Development Corporation

purchased Parkway Plaza from the FDIC for $11/2 million.

About one year after the init ial purchase, the defendants conducted a quick series of repeated

sales of Parkway Plaza. On November 30, 1989, Hickory Development sold the pro perty to

"Parkway Plaza Corp." or "Parkway Plaza, Inc." for $7 millio n. The buyer immediately resold the

pro perty on December 8, 1989 to Public Investors for $71/2 million. Public Investors sold the

property on December 17, 1 989 to Insurance Premium Assistance Corporation ("IPAC") for $10

millio n. IPAC reso ld the property two days later to Fidelity Fire & Casualty Insurance Co.

("Fidelity") for $10 millio n. On April 1, 1990, Fidelity sold Parkway Plaza to Southshore Holding4 Cf. Green v. Champion Ins. Co., 577 So.2d 249 (La.App.), w rit denied, 580 So.2d 668

(La.1991). In Green, the liquidator ad hoc of an insolvent insurance company sought and

obtained a declaration that the insolvent company and several related companies were a "single

business enterprise", thereby making the assets of all the related companies available to satisfy the

insolvent company's debts. Green was not complicated, as this case is, by the existence of a

pending federal bankruptcy proceeding.

5 The only official named in Marrero's counterclaim is "James H. "Jim' Brown, Commissioner of

Insurance for the State of Louisiana, in his capacity as the Liquidator of Midwest Life Insurance Corp. ("Southshore") for $13 millio n. Two days later, Southshore resold the property for $15 million

to "Concord Capitol", which resold it that same day to Midwest Life for $17 millio n. Each of the

buyers of Parkway Plaza was alleged to have been effectively a shell corporati on owned or controlled

by one or more of the named individual defendants. Defendants B.F. Shamburger and Gary Jackson

were alleged to have "dominated the affairs" of the various defendant corporations. The defendants

also allegedly engaged in a series of transactions involving resale of the various mortgage loans on

Parkway Plaza that had accumulated during the course of transactions described above.

Public Investors filed its Chapter 11 bankruptcy petition on March 21, 1991. The case was

converted to a Chapter 7 proceeding on May 20, 1991. On September 16, 1991, the State of

Louisiana sued Public Investors and seventeen other defendants, including related corporati ons and

some of their officer s and directors, in Louisiana state court. The State sought a declaratory

judgment that all the defendants constituted a "single business enterprise", an account ing of the

various transactions engaged in and assets possessed by the defendants, and asked that any o f t he

defe ndants' assets found to have been "improperly transferred, wasted, misapplied or

misappropriated" be deposited into the registry of the c o urt fo r "further disposition in accordance

with law". 4 Marrero notes, we think correctly, that this demand for marshalling of the defendants'

assets would have violated the automatic bankruptcy stay that protected Public Investors.

In response to the State's lawsuit, Marrero (1) removed the case to federal court unde r 28

U.S.C. §§ 1 334 and 1441, (2) filed a crossclaim against the other defendants named in the State's

complaint, adopting the state's pleadings as his own in the c ro ssclaim, and (3) filed a $28 million

counterclaim agai nst the State. The counterclaim charged that unnamed officials of the Louisiana

Department of Insurance 5 failed to perform their duties because they approved, or failed to prevent,Company".

6 Marrero alleges that both the October 1989 transaction involving the sale of Public Investors's

subsidiaries and the diversion of the proceeds, and the December 1989 transactions involving

Parkway Plaza, were approved by "the State of Louisiana, through its various officials, agents and

employees". Apart from Brown, Marrero has not identified any of the "officials, agents and

employees" alleged to have failed in their duties.

7 See Ross v. Midw est Communications, Inc., 870 F.2d 271, 272-73 (5th Cir.), cert. denied,

493 U.S. 935, 110 S.Ct. 326, 107 L.Ed.2d 316 (1989); Jordan v. City of Greenw ood, Miss., 711

F.2d 667, 669 (5th Cir.1983). See generally Ashw ander v. TVA, 297 U.S. 288, 346-48, 56 S.Ct.

466, 482-84, 80 L.Ed. 688 (1936) (Brandeis, J., dissenting in part), reh'g denied, 297 U.S. 728,

56 S.Ct. 588, 80 L.Ed. 1011 (1936). Public Investors's shady transactions at a time Marrero says they knew Public Investors wa s

insolvent. 6 Marrero charges the State with a loss of some $21 million from the sale of Public

Investors' subsidiaries, plus some $7 million from the Parkway Plaza transactions.

The State of Louisiana voluntarily dismissed its claims against Public Investors. The district

co urt then involuntarily dismissed with prejudice Marrero's counterclaim against the St at e, and

Marrero appealed.

II.

The district court rested its dismissal of Marrero's counterclaim on two alternative grounds.

First, it concluded that the State of Louisiana's Eleventh Amendment immunity from suit in federal

court barred the counterclaim, and the immunity had not been waived by the State or abrogated by

federal law. Second, the district court concluded that the statutory "discretionary function" immunity

of La.Rev.Stat. § 9:2798.1 barred Marrero's counterclaim.

When presented with two grounds for resolving a case, one statutory and the other

constitutional in nature, we will address the statutory ground first and dispose of the case solely on

that basis if possible. 7 In this case, the district court's dismissal of Marrero 's co unterclaim may be

affirmed solely on the basis of La.Rev.Stat. § 9:2798.1, and accordingly, we do not reach the

Eleventh Amendment issues.

A. "Discretionary Function" Immunity in Louisiana

In part, La.Rev.Stat. § 9:2798.1 provides:

(B) Liabilit

y shall not be imposed on public entities or their officers or employees based upon8 Fow ler v. Roberts, 556 So.2d 1, 15 (La.1989) (on rehearing). The Louisiana cases rely freely

on federal FTCA precedents in interpreting the state's discretionary function immunity statute.

See, e.g., id.; Rick v. State Dep't of Transp. & Dev., 630 So.2d 1271 (La.1994).

9 486 U.S. 531, 108 S.Ct. 1954, 100 L.Ed.2d 531 (1988); see Rick, 630 So.2d at 1276.

10 Berkovitz, 486 U.S. at 536, 108 S.Ct. at 1958.

11 Rick, 630 So.2d at 1276.

12 See Berkovitz, 486 U.S. at 536, 108 S.Ct. at 1958-59; Russell v. Guillory, 617 So.2d 213

(La.App.1993); Valet v. City of Hammond, 577 So.2d 155 (La.App.1991); Tenhaaf v. Quenqui,

571 So.2d 898 (La.App.1990); Cf. Simeon v. Doe, 618 So.2d 848, 852-53 (La.1993); Kniepp v.

City of Shreveport, 609 So.2d 1163 (La.App.1992), w rit denied, 613 So.2d 976 (La.1993).

13 See, e.g., DuBois v. McGuire, 579 So.2d 1025, 1029 (La.App.), w rit denied, 587 So.2d 696

(La.1991). t he exercise or performance or the failure to exercise or perform their policy-mak ing or

discretionary acts when such acts are within the course and scope of their lawful powers and

duties.

(C) The provisions of Subsection B of this Section are not applicable:

(1) To acts or omissions which are n o t reaso nably related to the legitimate

governmental objective for which the policy-making or discretionary pow er exists;

or

(2) To acts or omissions which constitute criminal, fraudulent, malicious, intentional,

willful, outrageous, reckless, or flagrant misconduct.

The Supreme Court of Louisiana has said that § 9:2798.1 "is essentia lly t he same as the

exception in the Federal Tort Claims Act", 8 28 U.S.C. § 2680(a).

In determining whether the discretionary function exception applies, the Louisiana courts

follow the two-step analysis laid out by the U.S. Supreme Court in Berkovitz v. United States. 9 The

first question is "whether the action is a matter of choice" for the government entity or employee. 10

"If no options are involved, the exception does not apply." 11 Therefore, for example, where a statute

prescribes a certain course of action, the government employee has no discretion to ignore the

statute's command, and "discretionary function" immunity offers no protecti on from liabilit y. 12 By

comparison, statutes that merely authorize or permit a course of action may provide some discretion

to perform that action or not. 13

If the government employee has some discretion, the inquiry proceeds to the second stage14 Berkovitz, 486 U.S. at 537, 108 S.Ct. at 1958 (citation omitted). The Louisiana Supreme

Court summarized this part of the inquiry by stating that "[i]f the action involves selection among

alternatives, the court must determine whether the choice was policy based." Rick, 630 So.2d at

1276.

15 See United States v. Gaubert, 499 U.S. 315, 111 S.Ct. 1267, 113 L.Ed.2d 335 (1991).

16 Rick, 630 So.2d at 1276 (citing Gaubert ).

17 Bozeman v. Reed, 633 So.2d 944, 956 (La.App.1994). Accord Fow ler, 556 So.2d at 15;

Simeon, 618 So.2d at 853.

18 The Supreme Court recognized this presumption in the Gaubert case, stating that:

[I]f a regulation allows the employee discretion, the very existence of the

regulation creates a strong presumption that a discretionary act authorized by the

regulation involves consideration of the same policies which led to the

promulgation of the regulations.

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.

Gaubert, 499 U.S. at 324, 111 S.Ct. at 1274. of the Berkovitz analysis, with the focus on whether the cha llenged conduct was an "action[ ] or

decision[ ] based on considerations of public policy.... involv[ing] the permissible exercise of policy

judgment". 14 The Supreme Court has recently made it clear that the determination whether policy

consid erat io ns are involved does not turn on the characterization of the challenged action as

"operational" or not. 15 "Decisions at an operational level can be discretionary if based on policy." 1 6

A policy decision is one that is "based on social, economi c, or political concerns". 1 7 There is a

presumption that when government employe es exercise discretion given to them by a statute or

regulation, they are doing so based on the same policy concerns that animate the controlling statute

or regulation itself. 18 That presumption set s a high hurdle for a complaint to overcome when

challenged with a motion to dismiss:

For a complaint to survive a motion to dismiss, it must allege facts which would support a finding that the challenged actions are not the kind of conduct that can be said to be grounded

in the policy of the regulatory regime. The focus of the inquiry is not on the agent's subjective

intent in exercising the discretion conferred by statute or regulation, but on the nature of the19 Id. at 324-25, 111 S.Ct. at 1274-75 (footnote omitted). Marrero correctly points out that

the Louisiana Supreme Court did not rely on this quotation from Gaubert in its opinion in Rick.

Given the general reliance by Louisiana courts on federal FTCA precedents in interpreting the

scope of the state's "discretionary function" statute, however, we consider the quoted language

from Gaubert

fully applicable in this case.

20 See supra note 1.

21 In sum, Marrero charges that Public Investors's success in deceiving the state should redound

to the benefit of Public Investors's creditors. The analogy presents itself of a robber suing the

arresting officer for failing to prevent the robbery. While we do not impute Public Investors's

shady motives to its bankruptcy trustee, who apparently was not involved with Public Investors

before it filed for bankruptcy, we still note that the equities in this case are far from being tilted in

Marrero's favor.

22 Gaubert, 499 U.S. at 325, 111 S.Ct. at 1275. actions taken and on whether they are susceptible to policy analysis. 19

B. Marrero's Counterclaim

Tested against the standards described abov e, Marrero's counterclaim cannot survive the

State's motion to dismiss. The allegations of Marrero's counterclaim, which we take as true, 2 0 allege

that "various St at e officials, agents and employees"—none of whom are identified—"fail[ed] to

diligently perform their duties and fulfill their promises"—none of w h ich are specified. Marrero

further alleges that unnamed officials of the State promised "the creditors of Public Investors, Inc."

(again, none of whom are specified) that the state employees would "diligently perform their duties

in a timely fashion". Marrero alleges that the State, through the aforementioned "various officials,

agents and employees", knew that Public Investors was insolvent in October 1989, but nevertheless

approved or failed to prevent Public Investors from selling its subsidiaries and diverting the proceeds,

or from engaging in the Parkway Plaza land deal. 21

Marrero's counterclaim contains no allegations of conduct that is "not the kind of conduct that

can be said to be grounded in the policy of the regulatory regime". 2 2 On the contrary , the State

argues persuasively that the Insurance Commissioner's decisions whether to approve financial

transactions by insurance companies are imbued with economic policy concerns of the highest order.

Marrero cites no statutes imposing a mandatory duty on the Insurance Commissioner or other state

o fficial, and because the statutes involved appear to vest the Commissioner with some discretion, we23 See Gaubert, 499 U.S. at 324, 111 S.Ct. at 1274. Marrero relies on, inter alia,

La.Rev.Stat.Ann. § 22:2, which merely provides that the State will regulate the business of

insurance in the public interest. We are unable to read this section as imposing any mandatory

duty to take a certain action, or to refrain from taking a certain action, that was violated by the

Insurance Commissioner in this case.

24 In its ruling on Marrero's motion for reconsideration, the district court stated that:

The Trustee's motion for reconsideration adds nothing that would remove its claim

against the State from discretionary acts immunity. Although the Trustee reasserts

his earlier argument that certain state officials failed to perform their duties, he

continues to be unable to point to a mandatory statute or regulation that was

violated. We are unmoved from our previous position. presume that the Commissioner is exercising that discretion based on the same policy concerns that

animate the statutes themselves. 23 Accordingly, we conclude that Marrero has no t o vercome the

"discretionary function" exemption of § 9:2798.1, and we uphold the district court's dismissal of his

counterclaim.

III.

Marrero next contends that the district court abused its discretion in denying him leave to

amend his counterclaim. It is not entirely accurate to say that the district court denied Marrero leave

to amend, however. What actually happened is that the district court considered Marrero's proffered

amendment and rejected it on the merits, finding t hat it did not suffice to cure the defects in his

counterclaim as originally pleaded. 24 We find no error in the district court's action. Marrero has not,

even at this late date, alleged or presented a scintilla of evidence that any state official violated any

mandatory duty or engaged in any of the types of conduct specifi e d in La.Rev.Stat.Ann. §

9:2798.1(C). Marrero offers us no reason to think that an amendment at this point would alter the

fate of his claim. Accordingly, we uphold the district court's ruling on Marrero's attempted

amendment and reject his request for leave to amend now.

IV.

Finally, Marrero requests that in th e event we hold that the Eleventh Amendment bars his

counterc laim against the State, we order this case remanded to state court. We resolve this case

solely on the grounds of the state discretionary function sta t ut e and do not reach the Eleventh

Amendment question. Accordingly, we need not address Marrero's request for a remand.We AFFIRM the district court's judgment.

. . . . .